Where can a buyer with bad or no credit get a mortgage?

Question

We just finished a flip house and took a current tenant through. They fell in love with it and went to the bank the next morning. Unfortanitly they have low credit and didn't qualify.We are willing to finance up to a 10% downpayment. Are there any banks or lenders that would loan to first time buyers with credit around 600? Selling price is $70,000. Thanks for any ideas!

Brian Gibbons · Answer

Jodi Melssen
I would get more hands on w that tenant buyer.  If you are in Iowa, have the tenant go to a licensed mortgage broker with a 1003 app filled out and find out what is possible.  Job and income you can not control.  Debt to earnings and Credit can be improved over time.

Then look at selling on terms in Iowa, like lease option, contract for deed, etc.  See if the mortgage broker will consider 12 to 24  months prompt payment a "refinance" instead of a new origination.

A Credit Improvement Specialist will help improve their FICO.  I use www.UpgradeMyCredit.com (no affiliation).  I like them very much.

Don't put just anyone in there, that is what the SAFE Act and the Consumer Financial Protection Bureau (CFPB) is trying to stop.  See http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/safe/sfea

Lastly, I like a Contract for Option coupled with a Lease, so they need to complete the Lease before they receive an option to buy.

Bottom line, have the licensed mortgage originator give an opinion on lendability for conforming and non conforming loans, and have the FICO coach give an opinion on improving their FICO score before they move in.

Tri Phung · Answer

I need a loan for a $100k town home which is being short sold to me pending approval.  I cant qualify for a traditional mortgage from any lender.  I do have good income ($100k+)and can provide good down payment and reserves.  Can anybody give me advice on the best way to find capital and best way to structure the loan?  I want to maximize my leverage here.

Property will rent out for $1400/month and was built in 2007.

Balloon note?  Length of term?  I want to buy and hold this one.

Thanks for your time!

Tri

Jodi M. · Answer

Thanks for all of your ideas :) At this time we are not desperate to sell the house. In fact it's currently rented to another tenant and we are waiting until I have my RE license in June to list it. The family that wants to buy it actually rents a different house from us and have been great tenants that pay on time. He has a decent job and can afford the house but they do not have any cash saved to put toward it. I would finance the down payment but I don't want to do a rent to own/lease etc at this time because I want to use the profit toward other things.

They don't have a bank so they went to the lender I use but he isn't able to do this one. I will look into finding them a good FHA lender or mortgage broker etc. Thanks for the ideas on forms and places to send them!

Bill Gulley · Answer

Hold your horses Joel, the "lease-option guys" aren't here yet!

We need to hear about 20 years of experience, how to do a conditional option and the best one is how to roll the option into an FHA loan in a year! :)

Joel is correct BTW.

Think of "creative financing" as the creative use of money or assets, if there is no money or assets, there is no creative use of them.

Financing the deal yourself isn't really creative and probably not a good idea at 100%  :)

David Beard · Answer

Your scenario happens a million times a day across the U.S.!

As an apparent flipper of "budget" houses for first-time homeowners, you need to have a very good FHA lender on your team, that knows how to get deals done, and knows the type of compensating documentation that can be brought to bear to push loans through underwriting.  Your first mistake was just letting them go to their own bank, or not already having a go-to FHA lending partner

Since they're first time buyers, you can check with state and local government programs to see if there might be something available.  Just google first-time home buyer lending programs in your State and your county.

The easiest mortgage is FHA, which will require 620 FICO and at least 3.5% down payment coming FROM THE BORROWER.  The other closing costs can be paid by the seller.  If you've been their landlord and can provide a letter to a lender demonstrating that they've paid their rent on time for an extended period, then that can help compensate for a FICO shortfall.

If you're not desperate (it's generally a pretty hot market), then you need to keep looking for a better candidate.

If you are anxious/desperate, and they have the downpayment money on hand, you could look at a 6 mth lease-purchase while they do the necessary credit repair, consulting with a good lender or credit repair agency.  The problem is that it might take awhile, and it's uncertain, and I have no idea what your financing on the flip is costing you (even if held in cash there is the obvious opportunity cost of keeping money tied up in it).

You really need to move on to a qualified buyer, and also immediately work on finding a very good FHA lender for marginal borrowers.

Joel Owens · Answer

Do they have a bunch of money for down payment but low credit?? OR Do you have no money to put down and low credit??

If it's the latter keep waiting for a different buyer. Banks are not going to allow a buyer with no money, credit, income to buy  a property. They are trying to get all that junk off the books now.

Do these buyers have long term stable jobs and can afford the property debt ratio wise?? If so they just need to get their score up a few points. I have seen lenders at a 600 score but requirements are tighter. FHA wants 3.5% down and conventional with the lower score might want 10% down.

If they have money to put down you could lease option for a short term while they are trying to qualify. If you have just brought your property to market I would wait awhile and see if a stronger buyer pops up.

Where can a buyer with bad or no credit get a mortgage?

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