March 2009

Bad Credit Mortgage Options

Today you will find that many people are dealing with bad credit. It has been so easy to get credit in past years, and it’s easy to get in over your head. With the current financial crisis, there are many people finding themselves having severe problems. If you need to purchase a home and you have bad credit, then you may be wondering how you can purchase a home. Well, there are some bad credit mortgage options out there that you can consider. With FHA loans, credit restoration, flexible underwriting, and other great credit solutions, there should be a way for you to get the loan that you need to purchase a home of your own, even if you do have less than perfect credit.

Sub Prime Lenders

You will find that there are lenders out there that offer flexible underwriting and who are willing to give mortgages to people who have credit that is less than perfect. These mortgages are usually known as sub prime mortgages. You’ll definitely find that it is much harder to get a mortgage when you have bad credit. However, there are still some options out there today.

After Bankruptcy

If you deal with bankruptcy, more than likely your credit is going to be pretty bad. This is a big credit problem. However, if you do show that you can work on paying them back, you may be able to get FHA financing available in a chapter 13 after 12 months of on time payments. This allows even people who have gone through bankruptcy to work on things so they can get one of the FHA loans that are available, even though their credit may not be very good yet.

Reestablishing Your Credit

Before you are able to get the mortgage that you need, in some cases you may end up needing to reestablish credit before this is possible. There are a variety of things that you can do for credit restoration. This can help to restore and improve your credit so you have better luck finding the financing that you need for your home. There are definitely a variety of different approaches that can be taken to repair and reestablish your credit.

First of all you will want to check out your credit report. Make sure that any problems are removed if they are mistakes. You’ll have to contact the credit reporting agency in order to do this. This can definitely help to improve your credit. Errors are pretty easy to fix up. However, if there are other problems, then you may need to work harder on restoring your credit.

Paying bills on time and working to pay off high interest debt can be a huge help as well. Work on getting out of as much debt as you can. If you are having problems meeting your bills, then consider getting involved in debt consolidation or in credit counseling. Many times you’ll be able to lower interest rates or even the amount that you have to pay. Also, taking out a consolidation loan may be able to help you get your debt under control so you can work on making your credit better.

Getting a Bad Credit Mortgage

In some cases you may still be able to get that mortgage, even with bad credit. However, one thing you need to consider is the price of a mortgage when you have bad credit. You’ll find that people with bad credit usually end up paying interest rates that are much higher. Sometimes there may be origination fees that you’ll end up having to pay as well. This will depend on the points on the loan. If you have one point on the loan, then you’ll have to pay one percentage of the loan. However, those who have very bad credit can pay all the way up to 4-5 points on a loan, which means up to 4-5% of the loan that you need to take out. In some cases a hard money loan may be an option to consider as well. However, it can cost thousands just to even get that loan in the first place.

The Best Option

While you may want to go ahead and take out a mortgage, even with bad credit, you may be better off to wait a bit and work on finding credit solutions that will help you improve your credit score. You can definitely save a whole lot of money if you improve your credit. This way you’ll have more options when you need a mortgage and the mortgage won’t be as costly for you as well. There is less chance of being taken advantage of when you can go with a mortgage for people with good credit. So, if you can wait a bit, take the time to reestablish your credit. Then you’ll have more options and a better chance of getting the mortgage that you need for a home.

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What is Asset Based Lending?

Perhaps you have heard the term asset based lending. Well, this type of lending really refers to any type of lending where it requires the security of some kind of asset. This way if the borrower is not able to repay the loan, then the asset can be taken to help satisfy the money that the lender has lost. However, this type of lending usually more commonly refers to lending that is done to large corporations and businesses with assets that other loans usually don’t use. These loans often are tied to things like equipment, accounts receivable, inventory, machinery, trademarks, intellectual property, and more.

When is This Lending Used?

So, you may be wondering when this type of lending is used. Usually it is done for companies that want to raise funds. Asset based lending is often a last resort when companies are not able to go through other lending options. In many cases this may mean that the company is dealing with very bad financial problems. This type of lending is much like subprime lending. Usually you’ll find that this type of a loan comes with interest rates that are very high. However, the lenders are often able to make quite a bit of money doing this type of lending.

Features of These Loans

There are a variety of features that come with asset based loans. One feature is an asset business line of credit. This is much like a regular line of business credit, but it is done with an asset to back it up. These lines of credit can fluctuate based on the balance that comes through accounts receivable, so the lender has to audit and monitor the borrower on a regular basis so it knows the size of accounts receivable. However, on the good side, it can allow for larger lines of credit as well, letting companies borrow larger amounts of money. Some other types of asset based lending include factoring of receivables and pledging of receivables. These types of asset lending make the receivables the asset that the borrower is borrowing against.

Differences Between Commercial Financing and Asset Based Lending
So, what are the differences between regular commercial financing and asset based lending? Well, the main focus of asset based lending is all on the collateral, giving leverage to the lender. Usually borrowers are given more liquidity when they go with an asset based loan. You’ll also find that these borrowers have higher financial leverage than those who go with traditional commercial financing do.

The Target Market

Most lenders that do asset based lending have a target market. They provide solutions to meet financing needs of specific people. Usually the target market is for businesses that have a revenue of at least $30 million, all the way up to about $250 million. These services are usually geared towards distributers and services manufacturers as well. Even those who do have revenues that are more than $250 million can be targeted as well. However, certain lenders usually have various specific industry groups that they want to reach out to, and this can vary from lender to lender.

Choosing a Lender

For companies that want to go with an asset based loan, choosing a good lender is very important. There are a variety of things to consider when making this choice though. Most companies will want to go with a lender that does not charge pre payment penalties. Other products should be available as well when you are trying to find the right lender. Good lending companies will offer transitional capital, which can allow a company to go from an asset based loan to some other type of commercial financing if their finances get better and allow it. These are just a few important things to look for when choosing a great lender for an asset based loan.

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Hard Money – What is It?

More than likely you have heard about hard money. However, you may not really be sure what exactly a hard money loan is all about. Well, essentially this is a type of asset based lending in which a person that is borrowing the money gets the funds, but they are secured by the value of a piece of real estate. Usually these loans come with pretty high interest rates, and usually commercial banks are not the ones that are making these loans. You’ll find that hard money is a lot like going with a bridge loan, with similar criteria. However, usually a bridge loan is for investment or commercial properties. Hard money is a bit different because it is a loan that not only is asset based and it includes a very high interested rate, but there many be a financial situation that is quite distressed as well.

Who Finances Hard Money Mortgages?

You may be wondering who the hard money lenders are. Who would want to finance these hard money mortgages? Well, usually you’ll find that these options are provided by private investors, since banks usually will not offer these options. Most of the time, the credit score of the person borrowing doesn’t even matter, since the loan is taken out against the collateral property and its’ value. When the loan is made, usually it is only given for about 65% of the value of the collateral. So, if the property is worth about $200,000, the loan amount would be about $130,000. This way if the borrower does not pay, the hard money lenders will be able to still make money and they will have the extra money to make up for the foreclosure proceedings they will have to go through on the property.

Structures of These Loans

Understanding the structure of this type of a loan can definitely be important. Usually this type of loan is a type of real estate loan that is made against the value for quick sale of the property. Usually the hard money lenders will fun these loans and will be in the first lien position, so that they are the first to end up getting remuneration of the borrower ends up defaulting. If they allow someone else to have the first lien position, this is called a mezzanine loan. The loan to value ratios on these loans is usually somewhere between 60% and 70%. If a lender was structuring the purchase of a piece of real estate, they would probably go for 65% in the hard money loan, 20% of cash or equity from the borrower, and then 15% of a seller carryback loan or another type of loan, such as a mezzanine loan.

History of the Term

You’ll find that the term “hard money” is really only used in the United States as well as Canada. This is where these loans are very common. When it comes to commercial real estate, these types of loans became a last resort option for those who needed capital and they are able to get it against their holdings and the value of them. This type of lending started out in the 1950s; however, in the real estate crash in the 80′s and the crash in the 90s, this industry had some real setbacks. Lower loan to value ratios are now in place since these things have occurred.

Commercial Asset Based Lending

Commercial hard money, which is often known as commercial asset based lending, is much like traditional hard money as well. However, since there is a higher risk, they are usually on the more expensive side. Usually these loans are short term and sometimes are also referred to as bridge financing as well. You will find that the industry moves quite quickly, making it great for people who need to have funding fast. However, the prices of the loans have become more expensive because of this fact.

The Expense of These Loans

The expense of the hard money loans can definitely be steep. They are definitely a whole lot more expensive than sub prime mortgages. Usually there is more risk to them, and the interest rates can be high. Banks don’t determine the interest rates that are paid. They are decided on the availability of the hard money and the current real estate market. Usually they end up ranging between about 12% and 21%. However, in some cases it can go all the way to 25% or even a bit higher. In some cases you could end up paying a penalty fee if you pre pay as well.

Finding a Quality Hard Money Lender

Finding a quality hard money lender to give hard money loans or no-doc/stated loans can be difficult. It’s important that you are careful as you select a lender as well. This market is quite predatory, and the prices go high and sometimes there are lenders that charge very high fees in the beginning as well. It’s usually not a great idea to go with a lender that asks you to offer them high fees up front. Unfair practices that occur should be reported to the attorney general office where you live. These loans can be helpful, but only if you get the right lender, so it’s important that you choose very carefully.

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