Mortgage second » Credit Scores

What Credit Score Is Needed For Low Mortgage Rates

admin — Thu, 13 May 2010 15:11:52 +0000

Whenever a home owner refinances their mortgage they always want the best mortgage rates they can possibly qualify for. Although low mortgage rates are advertised all over the place qualifying for them is a little more involved then simply just applying and getting the loan. So if you are wondering what credit score is needed for low mortgage rates read on and discover how your interest rate is determined.

The main misconception is that mortgages are only based on credit score. This is partly true and recently many lenders are requiring credit scores of 680 or higher to get the best rates. Even many wholesale FHA lenders now want a 580 credit score for borrowers. But even if you have good credit you will still need to meet some basic criteria to get the lowest mortgage rates possible.

When you apply for a mortgage your mortgage broker or loan officer will collect data from you such as recent pay stubs, bank and financial account statements and last 2 years tax returns. They will also order a property appraisal for your home to determine a market value. With this information your loan scenario can be run through an automated underwriting system. This system will look at many variables and issue a loan approval or denial based on these variables. So what exactly does the automated system look for?

Debt To Income Ratios: This is a mathematical calculation and is your total debt divided by your gross income. To qualify for low mortgage rates your DTI should be at or below 41%. Only accounts that are revolving count towards your debt to income ratio so do not count phone bills or other utility bills.

Loan To Value: In order to get the best rates your loan to value should be at 80% or less of the appraised value. As an example if your home was worth $100,000 then you should borrow no more then $80,000. As your loan to value increases so will your interest rate.

Amount of Reserves: Your reserves are basically cash you can access in an emergency. So figure in accounts like IRA’S, 401K’s checking savings and any other account you can liquidate quickly. As long as you have enough in reserve to cover 3-6 months expenses you should be fine

Mortgage Payment History: Having timely mortgage payments with no 30 day late payments is critical to getting approved for low interest rates. Even with one 30 day late you will not be approved.

Although there are more variable these are the ones that carry the most weight when the automated system is determining your eligibility for conforming loan approval.

By: Darin Sewell

How to Obtain a Bad Credit Second Mortgage

admin — Fri, 29 Jan 2010 17:50:07 +0000

We all know banks are not loaning money as easily as they used to when a loan is applied for. The fact is they are now looking much closer at credit scores before they make a decision on who qualifies and who doesn’t qualify for a loan. It is possible to get loans with bad credit, but not easy. Here are some possible ways of getting a bad credit second mortgage loan.

If your credit is not excellent, and you would like to improve it, a second mortgage gives you the option to consolidate your credit card debts and other payments you might have into a single loan, with a single payment each month, and you won’t have to refinance your original mortgage. Be aware the amount a lender can give on a second mortgage will not usually exceed the amount of equity you might have in your home.

Contrary to home equity credit lines, the second mortgage is a loan you get only once, and it has a regulated payment amount you need to make monthly. You can use the same lender as the original mortgage to get the second, or opt to try a different one. How easy it is to get money and how much money can be loaned are dependent upon the amount of equity in the home the owner has and his her credit report.

Most bed credit mortgage lenders look at the most recent two to three years of one’s credit report to make a decision. Whether you have been making your payments on time, and your income to debt ratio is in line are two major factors that determine who will have a chance for a bad credit second mortgage.

Another serious factor that is considered is what you intend to do with the money if the loan is approved. If your intention is to pay off high interest debts and consolidate things to make payments easier to handle, rather than invest in other projects or plans, your chances for approval of a bad credit loan go up.

It’s imperative to have collected some information to give the loan officer prior to your consultation when applying for a bad credit second mortgage. A copy of your credit report and any discrepancies noted with how you are trying to alleviate these in writing is helpful. If there are no errors on the report, a statement of how you are making improvements to your credit score should be attached to the loan application.

The best thing to do is be totally upfront with your loan officer about any indebtedness and your current situation. It’s also necessary to include your total income in the figures in order to figure out your debt to income ratio. The bank does not want to loan money that will not be repaid, forcing them to foreclose. As a result, it’s necessary to explain why you require money, and how you intend on using it.

Bad credit second mortgages aren’t easy to come by, but they can be the best option you have to improve your credit score in these tough times. You can improve these scores legally and quickly by putting numerous high interest rates together into just one lower interest rate loan without refinancing your original mortgage.

By: Paul Van Rode

Commercial Second Mortgages – A Way to Unlock Equity

admin — Mon, 07 Dec 2009 16:04:16 +0000

Commercial second mortgages have historically been a very rare financing tool reserved for extremely strong borrowers, divided into two general segments.

1. Owner occupant property owners with outstanding business finances.

2. Large sophisticated commercial real estate developments with minimum loan amounts beginning at $5 million. Typical project size would be $15 million plus.

Both of these types of loans have been out of reach for the vast majority of commercial real estate investors and users. Owners have had no reliable or efficient way of accessing their equity without refinancing their current first position loan or taking on the “dreaded” equity partner.

A few national lenders have recently started offering fixed rate commercial second loans; much to the industries surprise. This loan structure can dramatically change the illiquidity that so many property owners complain about.

The terms of the loan program include fixed periods ranging from 5 -10 years with amortization schedules between 25 -30 years. Loan amounts are small ranging from $50,000 -$500,000 with max Combined Loan to Value of 70 – 75%, among other details. Rates are strong for borrower with excellent credit, yet increase steeply for borrowers with good to decent credit scores. As of this writing, the lowest rate would be 8.15% for a borrower with 720 + credit and a loan amount between $400,000 – $500,000.

It is interesting to witness what our clients use the Commercial Second Mortgage for. Among the more creative scenarios include:

Use Commercial 2nd Loan Proceeds as Down Payment on New Acquisition.

For example, borrower could pull equity out of an existing property and use that capital as the down payment/closing cost on a new commercial property purchase. Essentially maximizing the overall leverage of the property owner’s portfolio and limiting out of pocket cash.

The underwriting of the second loan would be off the existing property and would not negatively affect the cash flow and or Debt Coverage Ratio of the property being purchased.

Use Commercial 2nd Mortgage as Rehab Capital.

Unfortunately commercial rehab loans are as daunting and cumbersome as ground up financing, requiring extensive underwriting and reporting. By tapping the equity in another property via a commercial fixed rate second mortgage the borrower can avoid the “process” of a traditional commercial rehab/construction loan. The borrower in this example would simply receive a lump sum of capital and can spend this money as he sees fit. There are no draws or city permit review/approval.

At the end of the project the borrower could refinance the loan of the property being renovated and use those proceeds to pay off the commercial second mortgage with better loan program tied to the rehabbed building.

Use Commercial Second Loan as Working Capital for Day to Day Business Activities.

Many borrowers do not like the idea of a floating rate line of credit. Many business owners prefer having the security of a fixed rate loan that enables them to better predict/manage their costs of capital. Business owners have virtually no restrictions on the use of loan proceeds. Common uses include, purchasing equipment, launching advertising campaigns, investing in new technology, etc.

Whatever the use or intent of the borrower, this new commercial second mortgage provides a solid option and an additional financing tool for commercial property owners.

By: Jeff Rauth