Hello and thank you for any and all suggestions in advance,
I have a friend (wife with a husband and two children) who purchased a home two years ago using a private money loan at 12% with the plan of refinancing after twelve months. Their credit scores were too low to obtain traditional financing. Long story short husband lost his job when COVID hit and wife's work hours were reduced. Their credit scores did not improve and now they are struggling to make their mortgage payments. They can't refinance using traditional financing and my suggestion was to sell the house (Market value of $300K and they owe $180K) while the market is high, rent something much smaller and wait for a market correction if it comes to buy back in at a lower purchase price. However at this point they are wanting to try and keep the house. Once again thank you for any and all suggestions,
Hey @Patrick Hancock , I like your idea but if they want to stay in the house that will be tricky. I am trying to think outside of the box so these ideas might now work but here we go...
1. Can they get a new hard money lender to bridge that gap for another 12 months when their credit improves?
2. Can they get a co-signer on the mortgage (and leave the lowest credit score off) till they can refinance and get the co-signer off the mortgage?
3. I've heard there are companies out there that can repair credit scores quickly. Those could all be scams but might be worth looking into.
4. Your preferred lender (or one that is good with low credit scores) might be able to look at their finances and find a fast solution to boost their credit.
I hope one of these helps or gives you a good jumping-off point.
@Brad Hammond thank you!
Sell the house
buy a duplex live in one half
@Patrick Hancock I would be careful for them to bank on a market correction. The crash in 08/09 was due to low down payments and huge mortgages, alot of people have been using 15/20% down payments as well. Which would combat that issue, if we see one it may not be for a year (on the flip side it could be next week) and we can see some houses come on the market in a year after the forbearance ends. This is how long it may take the state to evict homeowners. At that time we are assuming that the prices should drop, but it could be the case that the housing market is still hot. The fed just revealed that they are pretty much not raising interest rates even with inflation massively growing. We can expect this strategy for the remainder of the year and a possible pivot at the end of it. Or they could continue the same strategy which would be terrible for everyone. Once they do raise interest rates (because they have to at some point to fight inflation) for the market correction it could be like the 1970's crisis. Not trying to be scary just wanted to give you some information, do with it what you will.
I think your suggestion to sell the house and find something less expensive was a good one.
However, you are clearly dealing with people who are really, really terrible with money and so your suggestion will probably fall on deaf ears. I would hand them copies of Davy Ramsey's Total Money Makeover for the practical side of digging themselves out of this mess and also a copy of Robert Kiyosaki's Rich Dad, Poor Dad for the mindset shift that needs to happen. Then, until they get that shift in how they view money and happiness, there is nothing you can do.
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