A subprime lender, sometimes referred to as a hard money lender or high risk lender, lends money to people that cannot get a conventional mortgage from a conforming lender.

A subprime lender is willing to do business with you when a conventional lender is not. The subprime lender is willing to take a greater risk in exchange for receiving higher interest and greater fees. Also, subprime lenders typically require the loan to be secured by a down payment of between 10 percent and 30 percent, which gives them greater reassurance that payments will be made.

Although your payments will be substantially higher through a subprime lender, if you make your payments on a timely basis for a period of time and keep the rest of your payments up as well, a few years down the road, you may well qualify to refinance your property through a conventional mortgage at a significantly lower interest rate.

Often, a conventional mortgage lender will be more than willing to do business with you once you have stored up a few years of timely payments toward a piece of property, even though your credit may still have some blemishes. As such, it is important when acquiring a subprime mortgage to make sure that the contract does not prohibit you from paying off the note earlier than stipulated.

A hard money lender will look at your financial situation from a more holistic point of view than will a conventional lender. Although the hard money lender will certainly look at your FICO score, they will also take into account other factors, and are typically willing to work with borrowers with FICO scores as low as 500 or even lower, depending on your situation.