Can You Get a Bad Credit Mortgage Through Private Investors?
By Gina PogolMortgage Credit Problems Columnist
Edwin Asks: Dear Gina, I am having a very hard time buying a home in spite of my excellent income and a large down payment because I have bad credit. I have heard there are ways to get financing through private investors who charge higher rates but will do my loan. Is this true and how do I find these investors?
Gina Says:
Dear Edwin,
Thanks for writing. This is becoming a big issue right now so I'm glad you brought it up. According to an advertisement promoting a seminar that teaches private investors and brokers how to get into what is called "hard money" lending, "Foreclosure rates are at a all time high. We have never seen a better time to build your book of business in hard money. With the current credit crunch, borrowers are having a significant challenge obtaining mortgage loans through traditional and conventional banking guidelines. Hard money financing is more relevant in today's market than ever before."
So it looks like there are people out there expecting to make some serious money from your credit problems. Expect to pay--big time--for your loan. According to one happy private lender, "Interest rates vary along with origination fees. Typically, 5 points origination and 11% interest rates are common on a first trust deed. There are some lenders who prefer to offer a home equity line of credit rather than a first trust deed for owner occupied properties. In general, the loan to value ratio is about 60%, depending on the market conditions."
Some may offer loans with lower down payments, even zero-money-down mortgages, but require the applicant to put up some other collateral--your BMW may become part of your down payment. And while some borrowers just assume their their cars are on the line only if they default on the loan, others discover that they have actually signed the title of the car over to the lender.
So, assuming that you would prefer to go this route instead of taking the longer slower road of improving your credit the old-fashioned way--keep in mind that you are considerably less protected than a traditional loan applicant. A lot of these guys who lost their licenses recently for putting through loans with fraudulent documents or failing to issue government-required disclosures are back and doing hard money lending. They may be underwriting loans under another name, like their spouse's, or that of another dirt-bag friend.
Don't expect help from the government. It has its hands full. But if you insist on going through a pack of lending wolves to get your home loan, don't be surprised when you don't receive disclosures, your already stratospheric rate goes even higher, or the lender mis-routes your payments and forecloses on you--all favorite tricks of little private groups that escape government notice. Come on, if Countrywide, Washington Mutual, and those other huge guys didn't get caught by regulators, do you really think they are going to be watching Acme Mortgage group operating out of Joe's Garage?
Just be careful. If you know someone reputable and can trust, great. In any event, have a financial pro or real estate attorney look over anything before you sign, and make sure the documents that get recorded at your county clerk's office are the same ones you sign. You'd be surprised how many ARM riders or prepenalty disclosures "disappear" between the time you sign and the time they are officially recorded. Good luck and thanks again for writing.
About the Author
Gina Pogol has over a decade of mortgage lending experience, in addition to practice as a paralegal for a bankruptcy attorney, and as a business credit consultant for Experian. She is also certified to underwrite Fannie Mae loans. She earned her BS in Financial Management from the University of Nevada.
All information provided “as is” for informational purposes only, and is not financial advice. MortgageCreditProblems.com, its affiliates, and any of the independent providers of information on this site shall have no liability for any informational errors or incompleteness, or for any actions taken in reliance on information contained herein.
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