Bad Credit / Sub-Prime Mortgage for Owner Occupant

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Bad Credit / Sub-Prime Mortgage for Owner Occupant

Daryl Jarrett
Investor · Jenkintown, PA · Member since 2014 · 10 posts · 0 votes

I know we are not allowed to use bad language on the forums, so sorry for saying "Sub-Prime Mortgage", but that is exactly what my client needs! I am trying to sell one of my properties in North East Philadelphia to the tenants who have been living there for over three years. There are actually related people who would be applying for the mortgage, their credit scores range from 510 to 575. Their combined house hold annual income is over $90,000. They pay $2,325.00 per month in rent and are current. The house that they are looking to purchase is a large single home and would appraise for about $280,000. My selling price with them is $259,900 and I am offering them $9,500 in seller's assist, and they have about $10,000 cash to put down. So far they have been unable to obtain a mortgage. So, my question is does anyone know of a "Bad Credit" or "Sub-Prime" Lender that operates in the Philadelphia, Pa 19136 area? Also, if the lender needs more "Protective Equity" do they allow the seller to hold a second mortgage?

Thanks,

Daryl

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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
9y

@Daryl Jarrett , the credit system most frequently used is FICO, which runs from 300 to 850. The scoring is weighted toward the high end, though, so even 650 credit scores are still bad. You really have to work to get your credit down to a 500 score. 

These tenants have a high income and low credit. This tells lenders that they don't pay their bills, most likely live outside their means, and until they make big changes in their lives, they will continue to have bad credit.

Some lenders will go down to a 580 score, but that comes with a much higher interest rate.

I think you are being generous, trying to get help for these tenants. But they need to do some really hard work in order to be able to qualify in the future.

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  • Melvin ListBusiness Member
    Lender · Tampa, FL · Member since 2016 · 1k+ posts · 381 votes
    9y

    @Daryl Jarrett most lenders will have credit overlays on FHA and will turn them away without even running the file through the automated underwriting system. I would find a broker in your area that has lenders with no credit overlays and at least run the file. You can sometimes get an approval with compensating factors even thought the scores are really low.

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Why would you choose to waste time on a deal that has no chance of succeeding. You should not be setting up buyers to fail. There is no way these buyers will ever be able to hold on to a home like that with their deplorable credit record. Do them a big favour and move on to buyers that deserve to own their own home. Let them down gently.

    You need to set yourself a higher level of professionalism.

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  • Daryl Jarrett
    OP
    Investor · Jenkintown, PA · Member since 2014 · 10 posts · 0 votes
    9y

    Melvin, thank you for the suggestions. I will definitely check with local mortgage brokers.

    Thomas, thank you for the input. But I do think long term tenants who pay their rent on time deserve a shot at buying a house. Two out of the three tenants that would be on the mortgage have have scores in the mid 500's approaching 600, so I thought it was worth looking into these tenants getting a mortgage.

    Thanks,

    Daryl 

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Daryl Jarrett , the credit system most frequently used is FICO, which runs from 300 to 850. The scoring is weighted toward the high end, though, so even 650 credit scores are still bad. You really have to work to get your credit down to a 500 score. 

    These tenants have a high income and low credit. This tells lenders that they don't pay their bills, most likely live outside their means, and until they make big changes in their lives, they will continue to have bad credit.

    Some lenders will go down to a 580 score, but that comes with a much higher interest rate.

    I think you are being generous, trying to get help for these tenants. But they need to do some really hard work in order to be able to qualify in the future.

    [email protected]Podcast Guest on Show #261
    BiggerPockets
    1Reply
  • Harjeet BhattiPro Member
    Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
    9y

    There are some lenders who manually underwrite file under FHA for lower credit score. Portfolio lending will required larger down payment.

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  • Frank Y.
    Lender · Philadelphia, PA · Member since 2017 · 225 posts · 72 votes
    9y
    Daryl Jarrett Have you tried to fix their credit up to mid/high 600?
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  • Jose Vargas
    Philadelphia, PA · Member since 2016 · 7 posts · 1 vote
    9y
    Agreed give them a chance to own, since there payments will be lower once they qualify, also there are numerous reasons why credit falls and at time not of our own fault such as credit repair scams, but yes they do have to start doing credit counseling to manage long term
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