Another 700+ Credit Question
Hi everyone. I have 32k equity in my primary residence. My credit score is 700+, but because my debt to income ratio is too high, conventional lenders have no use for me. What do I need to do to get that 32k? I only need it for 6 months to a year. I looked at some of the hard money info here in the lender links, and I only got more confused. Thanks - Zach
you shouldn't have any trouble getting the money through a hardmoney lender they don't really care what your credit is or how much you owe they are only concerned with the amount of equity you have in your house. They will charge you a higher interest along with points.
Ok, so far so good, then. Now, do I make payments on this kind of loan, or are payments deffered until the end an agreed up length of time, like a year, for example? Also, I saw some of these loans advertised with similar terms, but the interest rates varied considerably (6-12%). Why is that? If they don't care about my credit, so much, why the big spread in rates from one lender to another? Zach
typically, hard money lenders will only lend up to 65% of the value of the property. that being said, the private mortgage market is entirely unregulated (except for usury laws), so each one is different. they are usually interest only, with about 5pts. some will roll the points into the loan, but almost all will require you to make payments. the wide interest range depends moreso on the ltv than anything else usually.
they are also usually only good for a few years at most and most will contain a pretty stiff prepay penalty.
Gotmike, if I'm understanding you correctly, it sounds like there would be no advantage to hard money unless you have bad credit. a person with good credit can just as easily get a HELOC for more than 65% loan to value, with no prepay penalties either. Am I missing something?
you can also use a non-conforming lender.
If your debt to income ratio is too high you can use what is called a stated income loan, where you state your income (the actual amount isn't verified) and the lender just verifies that you are actually employed. Send me a private message if interested I may be able to help you obtain this type of loan.
You haven't told us the market value of your house, and that determines how easy it is to get to that 32k.
Washington Mutual will loan equity line up to abut 70 pct loan to value. If the house is worth 32k they will loan you about 21k. If the house is worth 110k they will loan you nothing.
Lenders are looking for a little pad between what they loan and the market - in cast the market drops.
The less the pad, the more the interest.
House appraised for 99k two or three months ago. I know how that 70% deal works, thats why I'm looking for a creative solution instead. I have some leads, we'll see where they go. Zach[ Edited by Zach on Date 11/24/2003 ]
Dear Zach,
Looks like you got a lot of really good advice. Very nice good supportive team.
After looking at them all I think the best thing for you to do is take an equity loan. From the proceeds, prepay the monthly payments for the period of time that you will be using the funds.
Thus no payment drain during the period of your usage of the money.
If you take the equity loan, lets play a little game. Put the money into a bank account with the bank that made you the loan. I would isolate the account unless you already have one with that bank.
With everything in position I would then tighten my friendship with the loan officer who arranged the equity loan. Lunch, perhaps a confidential time having a drink whatever. Find out what are his dreams, values and projected path of advancement. Examine same and see if you can assist him. In exchange for this thightened chain of friendship all sorts of good thing. Increase to the equity line. Staying at a lower interest rate for a longer period of time. etc. etc. and the beat goes on.
In the military it is always most important to have some person in higher position concerned with you and your future. So is it in civilian life with our bankers, lenders and able assistants.
Play the game man, you have started really well.
Cheering Lucius
A truly Machiavellian reply, Lufos.
Really makes me think.
I don't know why you are looking at hard money investors if all you want to do is capture the equity in your home. There are many 100% programs that can help you with a score above 700+...PM with more details, maybe I can help you with a conventional loan.
Another question for you, do you have a corporation that is 2 years or older. There are signature lines of credit available for people with your credit scores, who have a corporation or a friend has a corporation that has 2 years of history or older ( and no the corporation doesn't have to have credit, stated programs.)
Has anyone thought of lowering the ratio? Is it possible to move money balances around and free up a couple hundred dollars? just a thought.
You all have been extremely helpful. I don't mind telling you that I've been losing a lot of sleep over this, but now, because you took the time and interest to help me, I see there is a solution. Lufos, everyone I've spoken to or PMed since beginning this post have been out of state, but I understand your ideas and agree with what you suggest. I do believe in building relationships, and I also think the equity line is the way to go so I can avoid closing costs and prepay issues. One question, though,- how can I increase the equity line over the value of the home? Vinceh, I have a friend at Wells Fargo, and their conservative ways led me to believe that no one would give me an equity line with the debt ratios I have. Some people suggested hard money, and so that's the path I was investigating. I've been happily surprised. I have no corporation. I've been in touch with 3 lenders today, and I appreciate your offer, but the truth is that I do not want to take any of your time until I sort through the others. I'm a bit overwhelmed at the moment. Steena, the problem with the ratios is that I'm upside-down on a sfr that I had used as a primaty for about 5 years, and rented to help cover my expesnes when I moved. The house was for sale at the time, but I wasn't happy with the offers I was getting. It's a dog, and while the tenents say they want to buy it, they are frozen with fear, and even after I prepared the paperwork for them, they could not decide. They have about 4 months left on the lease, and while I suppose I could boot them to dump the property, I've decided that it's just not the way I want to do business. Stupid, maybe, but good karma, I hope. Anyway, it will be on the market very soon, but I need a solution now, and I don't know what else to do about it in the meantime, and I have bigger fish to fry at the moment. If anyone has an idea how to move that property with tenents still in it for 4 months and a very negative cash flow, I'd love to hear some suggestions for that. I tried to buy them out, but they were not interested. Why? Because they wanted to buy it! And then we have come full circle to begin again. Thanks everyone. Zach
If you have the property rented, how can there be negative cash flow. Are you renting for less than your payment?
Yes.
I too would be very interested in learning how you have a rented property with negative cash flow. Second - If your tenants are interested in purchasing, why not do a lease option with them. The option money is yours to keep, and you can bump the rent to market, and let them pay more per month toward their down payment. Third - How out of whack are your ratios. If they are way out of whack, you will not be able to get a HELOC, and your next best solution is to do either a no doc refi, or a no doc straight second. The revolving line is best, but if you need cash without docs, the straight second, or refi are your best bets.
It's a long story to tell about how I got to this point, but facts are that I am receiving about $925 every month from my property manager and my payments are about $1300 - $1350. Balance due is about 133k. I think you see the problem here. This house was my primary for several years and was never meant to be a rental. I'm fed up with trying to make a deal with the tenants. They are otherwise good tenants. House appraised for 160k about 2 tears ago and I offered to sell it to them for 153k with a warranty. I'm tired of their waffling and making excuses for not committing. BUT, I really like your idea about the lease option, and if I can get my property manager to deal with them instead of having to do it myself, I'd be very interested. The rent is low, but I was in a crunch at the time and needed to fill an empty house. I might be able to raise it 10 or 20%, but that's not really going to solve my problem, and I haven't been able to get a lower interest rate due to the reason stated earlier, and also because it is now "investment property" . So, I think my ratio was something like 59%, and Wells Fargo wanted 45%. All suggestions are welcome. Zach[ Edited by Zach on Date 11/25/2003 ]
Zack
Find a good mortgage broker refinance and do it with cash out. Possible to lower interest rate with a longer term to give you a better cash flow. Then do your lease option with tenant or owner finance or or anything besides twidling your thumbs.
A good broker will shop around to find a loan that will fit your needs.
ED
I'm very confused with a 700+ FICO score and equity in your home you should be able to write your own terms onjust on any loans you try to obtain. Anyone that has a 700+ score, lenders just begin to salivate.
Well, it's 721, because I just cheched it 2 days ago, but it sure doesn't seem to be that anyone is salivating, haha. But, one of the 3 lenders I've talked to has actually called back when he said he would, and does seen to really want to help. Now, the trouble is that I really don't know if I'm going to get favorable terms (favorable to me, that is). When I have some more details about the loans we're talking about, I'll post them here to see what you guy's think. I don't want to be played, but I'm also happy that I will be able to get the cash I need. I should know more early next week, I hope. Have a good holiday everone! Zach
now a days ratios arent always a problem. There are many programs and many ways around it I suggest you take it in the form of an equity line of credit. There are ways to do that to. Call around you have to do some work to get it done. Your problem is getting through the people that are just trying to get you in there and the people that dont know what they are doing. This includes banks I recommend experinced money people that are refered by investors that know what they are doing. If you dont get experienced in the money part of this your going to live a puzzled life as a investor. Even the most experinced guys expirence uncertainty when it comes to loans. Get to know all you can. You know the numbers. You even know a crapload about the law but do you understand the finance part of this well
Zach,
Your numbers are interesting. I don't know what your original principle was, but according to my calculations, you may make out by refinancing with a 5/1 ARM. What this means is that it is an adjustable rate mortgage, but the first five years are fixed. You should be able to get the 5/1 ARM for less than 5.5% Which brings your principle and interest payments down to $755. Add your escrow on top, and you are probably looking somewhere around $1000 to $1050 in total payments. Bump the rent up to make up the difference, and you are breaking even. Now you have five years to sell the house. Either do a lease option with your current tenants (which now gives you a positive cash flow with the option money they give you.), or sell to someone else either with a lease option, or straight sale.
The only draw back to this is that your house has to appraise for 167K to pay off your current balance, or above 170K to roll in closing costs to stay below 80% LTV. Otherwise you may have to pay PMI like you are probably doing right now. The good news is that chances are good that it will.
Zach,
For those who have great credit I've found a great source for unsecured loan products that include equity lines of credit. Check out my website out and follow the link labeled unsecured loans.
Mark