Get a mortgage even with bad or sub prime credit

October 14, 2006 — Leave a comment
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Get a mortgage even with bad or sub prime credit

  • Improve Your real estate or home

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  • Stop  Foreclosure of your mortgage

  • Buy a home

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Most Lenders consider 4 vital facts before giving you a residential mortgage: (click here for commercial mortgages)

(only the collateral is usually considered for a hard money mortgage, equity loan)

The four “C”s

  • Collateral. The value of the property you are borrowing against.

  • Credit. The way you have paid people in the past is considered a good indication of your willingness to pay money back in the future. 75% or more of loan originations involve the use of FICO credit scores.

  • Capacity. Do you have the income to pay this loan and still eat!

  • Commitment. How much of a cash down payment did you put down.

Why are these 4 things important?

Real estate collateral or Loan to Value ratio

Your mortgage will typically be a proportion of the value of the real estate. For example: the home has a market value of $100,000 and you want to borrow $80,000 as a first mortgage. This would be a Loan to Value ratio of 80%.

Let us assume for the moment that you are buying the house for full market value, that is $100,000. Where does the rest of the money come from, $20,000 plus the closing costs, pre-paids etc? It could come from your savings, it could come from a second mortgage, either a seller held second mortgage or another lender, it could come from a gift, perhaps from your parents. Or it could be a combination of these.

Lenders LIKE you to have your own money in the deal. If the other 20% is your money, this gives them a strong feeling of security.

How about if you are actually buying this $100,000 house for $70,000? Conventional lenders like banks will only lend you 80% of the market value or purchase price, whichever is LOWER. In this case they would lend you 80% of $70,000, or $56,000

Why is this? It makes the loan safer for them, they don’t really believe that you have got a great deal and they still want you to have your money in the deal.

But there are mortgage lenders, typically those that work with investors who will not be bound by a percentage of the purchase price. However they will usually lend you less than 80% of the appraisal value. These lenders are often called hard money lenders.

Why is the Loan to Value ratio important? Simple. If the lender has to foreclose on the loan because the borrower hasn’t paid, they will not only want to recover the principal outstanding, but also their legal fees and unpaid interest. Obviously this can only  happen if the house is worth more than the principal, legal fees and accrued interest. If they lent $100,000 against a home worth $100,000 this is not likely to be the case!

Credit

If you have a proven history of not paying other people on time, it is highly likely you won’t pay the lender on time. Let’s be blunt here. When someone has bad credit, what it really means is they just don’t pay their bills. Now there can be a good reason for this, and these are often taken into account. For example medical bills when someone has no health insurance. Or perhaps you went through a nasty divorce and your bank account was cleaned out. Maybe you started a business that failed and have now got a regular job.

But if there is a track record of car repossessions, credit card write-offs, unpaid utility bills etc. you come across as someone who is financially irresponsible. Unless the property is worth a lot more than the loan you want, you probably won’t get it.

Order your credit report on-line now.

Capacity

The lender wants to sure that you can afford to pay your mortgage and still pay your other bills. In fact, it is LAW in some states that lenders avoid residential loans that the borrower clearly can’t afford. They will consider your job history and your time on job. How much other debt do you have? Are you over extended? Conventional lenders use certain ratios to calculate your capacity to pay back the loan. A conventional lender is one like Bank of America, Wachovia, Wells Fargo Bank.

  • The mortgage debt ratio. This is the percentage of the new mortgage payment to your income. 28% is a typical maximum ratio on a conventional mortgage.

  • The total debt ratio. This is the percentage of your total monthly payments, including the new mortgage, to your income. 33% is a typical maximum ratio on a conventional mortgage.

Commitment

Commitment is usually shown by having your own money at risk. If you are buying a $100,000 home and put down an investment yourself of $20,000 you have made a big commitment and will not lightly walk away from your obligations. On the other hand, if you have none or little of your own money invested, you are much more likely to just shrug your shoulders if things get tough and walk away from your obligations.

Consistently, year after year, low down payment FHA mortgages loans have a higher default rate than conventional mortgage loans.

Free Hard Money Mortgage Qualifier Spreadsheet

 Your ALT-Text here Download our FREE Excel Spreadsheet to see how much of a HARD MONEY mortgage you qualify for, depending on your credit score, down payment etc. Note this spreadsheet is purely OUR opinion, it is not an offer to lend. Other lenders may be more or less conservative than the amounts shown here.

OR run the same hard money mortgage qualifier spreadsheet on-line here.

Maximum loan qualifier calculator for conventional or sub prime mortgage.

Post a FREE mortgage loan request on our site

You are invited to post a listing to borrow money secured by real estate on our site. Lenders will compete for your business.

Mortgage requests that don’t work on our site (or anywhere else for that matter)

We constantly see ads placed that look like this:

We have terrible credit and no money. Can someone please lend us money to buy a house, we really want one?”
OR
“I am a 25-year old student with bad credit and no money. I would like to borrow $6 million to buy a shopping center”.
OR
“Want 100% financing to buy apartment building. Zero down payment.”

PLEASE! Ads like this are just a waste of your time. You’re dreaming. Ask ANYONE in the street if they’d like to own a shopping center (or a hotel or an apartment building) if they didn’t have a dime of their own money at risk and it didn’t matter how bad their credit was. How many people do you think would refuse?

Would YOU lend your money to such an individual? Of course not. Because you know full well that the borrower has a high chance of default and you will end up losing money when you eventually go through the legal steps to re-possess on a probably trashed property.

If you have bad credit and no money the only ways to buy a home are to buy it for well below market price (and get a high interest hard money mortgage) or to get a lease option on a home.

Mortgage requests that do work

But let’s change them a little. Same facts as above but now the borrowers have found good deals.

“We have a house under contract. It has been independently appraised at $100,000 when fixed up. The tax assessment is $80,000. We have it under contract for $55,000. The appraisal states that it would cost $10,000 to fix it up. But we hope to reduce this as we will be doing much of the work ourselves. Our credit is not so good and we only have $2,000 to put down. We would like to borrow $65,000. We need $55,000 to close and have no objection to the other $10,000 being held in escrow pending inspection that the work has been done properly. We would need stage payments released. We are looking for a maximum loan period of 24 months as we intend to clean up our credit and then re-finance.”

“My uncle has owned a shopping center for the last 20 years. He owns it free and clear. He wants to cash out and retire as his health is not so good. The net income after expenses but before depreciation is $600,000 a year. This allows for a 5% vacancy factor and 10% for leasing expenses and professional management. He has offered it to me for $4 million. As I’m an inexperienced student I would keep the professional management in place. An appraisal would indicate a value of about $6 million.”

“We have been renting the same house for the last 8 years. The landlord wants to sell it as he is moving out of state. It is worth $100,000, which is the sales price. We are able to put $3,000 down, we will need a first mortgage of $70,000 as he has agreed to hold a second of $27,000. Our credit isn’t too good after an on the job accident that had me laid off for 4 months. But we have both held the same jobs for over 5 years now. This will be our only debt. We have paid-off our cars.”

“I’m looking for a commercial construction loan on a rehab property, with a cash-out option after the property is improved.

The property is a row house in a favorable suburb of Philadelphia. After-Repair Value is around $130,000, according to local realtors. I am purchasing the house for $66,000 plus a creative financing deal for the seller. It will cost about $13,000 to bring the house to top-notch condition — rehab items include porch repair, brick pointing, plumbing repair, new kitchen cabinets and a new heater.

I am asking for a loan of about 65% of the cash purchase price of the property, so I can begin repairs. Once the rehab is complete, I would like to convert to a short-term commercial equity loan at 75% of appraised value, to get my cash back out while I sell the house.

Here’s the challenge:

My business is brand new, and this is my first property, so the company has no credit history. My own credit was fine until 2001, when my employer went belly-up and I remained unemployed for 2 years, and grossly underemployed (worked at Radio Shack) for another 2 years. My credit score is now around 580, ENTIRELY due to events related to my unemployment. I have no employment other than my business. So, I’m a high risk for a lender.

In exchange for accepting the risk, I am willing to pay above-market rates, some points up front, and give the lender first position on all loans. The loans will be fully secured by the property itself. Plus, I’m going to pay my debts; I’m a good credit risk with some recent hard luck.

Please call ONLY if you are willing to shoulder the bad credit.

Thanks for your interest.”

The above loan requests will produce loan offers. If you have little money, bad credit and are paying just about full retail price for a house, the only way you are likely to get financing is with: a lease option, seller financing or some government sponsored schemes.

How to write an effective listing.

Place a listing for money you wish to borrow. 

We recommend that you are proactive in your search for the money you need. After placing your ad, find it and use the “Email this ad to a friend”  button to send your listing to possible lenders you will find on our list of lenders.

Look for lenders.

Definitions

LTV means Loan to Value. If your property is worth $100,000 and you want to borrow $60,000 your LTV is 60%.

Excellent credit means no late pays in last 12 months. No foreclosures or bankruptcy last 7 years.

Few blemishes means few late pays in last 12 months. Foreclosure or bankruptcy over 4 years ago.

Poor credit means many late pays. Foreclosure or bankruptcy within last 4 years.

Terrible credit means currently in foreclosure, discharged from bankruptcy within last year.

View and print HUD document “Your Settlement Costs” here

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