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
Posts Tagged ‘Second Mortgage’
How to Obtain a Bad Credit Second Mortgage
January 29th, 2010Removing Second Mortgages Though Lien Stripping
January 18th, 2010
In the present economic times many individuals are living with financial decisions causing them to hold assets, such as houses, automobiles and boats, whose values have plummeted. Individuals are living in properties whose values have dropped far below the mortgages or driving cars, which are valued at a third of the loans. Those individuals with financial difficulties are looking for assistance through the bankruptcy courts in an attempt to get out from underneath all of the debts and liens acquired, which now vastly exceed their current assets.
There are two types of liens, which can be attached to an individual’s property or assets. The first is a voluntary lien, which is basically a situation where you have agreed to use the asset as collateral for a debt, i.e. mortgages and auto loans. A non-voluntary lien is one that a creditor imposes on you and that gives them the right to force you to sell the asset so that they can be paid, for example: judgments against you or tax liens. These liens are either secured or unsecured as to the asset they are attached to.
The most common issue for an individual nowadays is the situation where a homeowner who has a first and second mortgage on a primary residence is facing bankruptcy and wondering if they have the ability to save the family home. As real estate markets fall and the fair market values of the homes fall, homeowners are left with mortgages that far exceed the current fair market value of their homes. There is a process which could be of help to many in this situation and it is called “lien stripping”.
“Lien stripping” refers to the process of reducing a secured claim to the value of the underlying collateral. It uses the combined effect of 11 U.S.C.A. § 506(a) and 11 U.S.C.A. § 506(d) to bifurcate the lien into secured and unsecured. The secured lien is allowed in the amount up to the fair market value of the property at the time of the stripping. The balance of the lien, which exceeds the fair market value of the property, is now deemed unsecured.
Liens can be stripped off of the debtor’s assets in Chapter 11 or Chapter 13 when there is not enough equity in the assets. Section 506(a) and 506(d) of the Bankruptcy Code acknowledges that a lien is only a secured claim to the extent there is value in the asset to which it attaches. To the extent that the claim exceeds the value of the collateral, that portion of the lien is now unsecured. The most common application of lien stripping is the reduction of car loan liens to the present value of the vehicle however it is currently used more often with home mortgages in bankruptcy situations. Lien stripping with car loans has been limited to vehicles purchased over 910 days.
The Bankruptcy Code does permit a bankruptcy plan to “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence”. Section 1322 (b)(2). This section provides protection to the holder of a claim secured only by a lien on the debtor’s principal residence by prohibiting any modification of the terms, however the issue arose as to if this section precluded “lien stripping” of undersecured residential mortgages in the face of Bankruptcy Code section 506 which appears to permit bifurcation of undersecured mortgages and voiding of unsecured portions of the mortgage lien. At least two bankruptcy court judges sitting in Massachusetts have permitted such bifurcations.
In any event, there is an exception as to the lien on a principal residence lien and that is if there is a second or third lien on the same property. In this instance those liens, lien stripping is available to render them totally unsecured if the first mortgage balance equals or exceeds the value of the personal residence. The exception is only if there are two distinct mortgages on the property, not a refinancing situation. It should also be noted that the limitation of lien stripping of first mortgages only apply to personal residences, it will be allowed for a mortgage on a building used for business or renting.
As always, all situations relative to a strategy for bankruptcy and lien stripping should be discussed in detail with a bankruptcy attorney to understand all your avenues open to you.
By: Michael A. Goldstein
State Fee Limits for Second Mortgages in California
January 14th, 2010
Everywhere you go, advocacy groups are urging stricter laws on non-conforming 2nd mortgages and home equity loans. Sub-prime mortgages are likely to be more costly than “A -paper” loans, but they are intended for borrowers who pose a greater risk to lenders. In most cases they are considered non-conforming because of the lack of credit or past credit problems.
California’s new laws, AB 489 and AB 344, became effective July 1, 2002. They apply to a mortgage or deed of trust with a loan balance of no more than $250,000. The protections provided by the laws are triggered if the annual percentage rate of the loan is more than eight percentage points over the yield on Treasury securities, or if the total points and fees payable by the consumer exceed six percent of the total loan amount. Thus, there is a 5.99% max in fees. (i.e., $35,000 second mortgage in CA is restricted to 5.99% of loan amount = $2,096 for APR affecting fees. Maximum APR for a 15 year 2nd mortgage in August in CA is 13.10%, and for the rest of the nation its 15.07%.
What is happening is that people in California are being rejected for 125% second mortgages and sub-prime home equity loans because the State of California thinks that they can’t make financial decisions on their own. And, some groups continue to feel the need for legislation further tightening the provisions of AB 489 which would make it even more difficult for California homeowners to use their home equity to secure loans.
If California homeowners want to consolidate credit card debt that they are paying 20% a month for, they should be able to consolidate the debt into a second mortgage. Interest rates are driven by market conditions, and credit risks determined by the lenders. CA should follow suit with the rest of the nation.
Excessive anti-predatory lending laws can hurt legitimate lenders and the consumers they serve. For example, sub-prime loans do help people with poor FICO scores by extending debt consolidation refinancing and second mortgage loans to pay off high-interest debts. Also, sub-prime loans are legitimately extended to borrowers with good credit who are self-employed or who have unpredictable incomes.
By: Maria Ny