Posted on: 09th Sep, 2008 04:40 am
we have a highly unusual situation and i am hoping someone can at least help me speak intelligently about options when i call banks.
my husband and i have very poor credit due to a lengthly layoff years ago. however, my father is putting our house (worth $200,000) in our name and it will be totally paid off. no mortgage whatsoever. he is doing this so we can get a loan against the house ,then open cd's for our sons' education. $25,000 of the funds will go towards finishing our basement.
we are even willing to use the cd's that we open as additional collateral.
so the bank will really only have $25,000 that isn't secured by the cd's and that will be secured by a $200,000 home.
my question is twofold:
1) do we have any prayer of getting this loan with very poor credit?
2) would this be a mortgage loan? or a home equity? remember the house will be completely paid off when it is transferred to us. so it wouldn't be a second mortgage, but i'm not sure if it would be a first?
i sincerely appreciate any help you can offer.
my husband and i have very poor credit due to a lengthly layoff years ago. however, my father is putting our house (worth $200,000) in our name and it will be totally paid off. no mortgage whatsoever. he is doing this so we can get a loan against the house ,then open cd's for our sons' education. $25,000 of the funds will go towards finishing our basement.
we are even willing to use the cd's that we open as additional collateral.
so the bank will really only have $25,000 that isn't secured by the cd's and that will be secured by a $200,000 home.
my question is twofold:
1) do we have any prayer of getting this loan with very poor credit?
2) would this be a mortgage loan? or a home equity? remember the house will be completely paid off when it is transferred to us. so it wouldn't be a second mortgage, but i'm not sure if it would be a first?
i sincerely appreciate any help you can offer.
I think it will be a first mortgage on your home. Can you tell me how poor your credit is?
My husband's is 550. Mine is 570. It stinks I know. My hope is that the banks will see that the loan is ridiculously heavily secured and we wouldn't risk defaulting on a loan that involves our house and kid's college future as collateral.
here's my take on your situation, burkehenry.
first of all, with those credit scores, you'll have to have exceptional compensating factors to allow a lender to approve your request. some of those factors could include job stability, money in the bank, re-established favorable credit, etc.
the factors you've brought up will not, unfortunately, hold much water with most underwriters. most borrowers will not risk defaulting on a loan that involves their home, yet we continue to see rampant foreclosure action all over the nation.
also, i'm not trying to be mean or sarcastic or anything like that, but someone's college future is not collateral for a loan.
if you cannot demonstrate the compensating factors i've noted, you may just want to wait to apply for that loan after you've been able to get to that point. work on bumping those scores up at the same time and you'll be successful a little bit later than sooner.
yours is not an impossible task, but it will take some work on your part.
first of all, with those credit scores, you'll have to have exceptional compensating factors to allow a lender to approve your request. some of those factors could include job stability, money in the bank, re-established favorable credit, etc.
the factors you've brought up will not, unfortunately, hold much water with most underwriters. most borrowers will not risk defaulting on a loan that involves their home, yet we continue to see rampant foreclosure action all over the nation.
also, i'm not trying to be mean or sarcastic or anything like that, but someone's college future is not collateral for a loan.
if you cannot demonstrate the compensating factors i've noted, you may just want to wait to apply for that loan after you've been able to get to that point. work on bumping those scores up at the same time and you'll be successful a little bit later than sooner.
yours is not an impossible task, but it will take some work on your part.
George, first let me say thanks for the response.
But the "college future" you poo-pooed would be in the form of CDs in the bank where the loan would be held. And could be used as collateral. I'm not a banker but seems to me it doesn't get more secure than that. Most of the loan that we will be taking out would be put into said CDs and could even be done so as part of the funds disperal in the closing process.
Perhaps I need to go through an actual bank that holds the mortgage to take advantage of the additional collateral of the CDs.
But the "college future" you poo-pooed would be in the form of CDs in the bank where the loan would be held. And could be used as collateral. I'm not a banker but seems to me it doesn't get more secure than that. Most of the loan that we will be taking out would be put into said CDs and could even be done so as part of the funds disperal in the closing process.
Perhaps I need to go through an actual bank that holds the mortgage to take advantage of the additional collateral of the CDs.
i had to laugh. "poo-pooed" is not term i would use to describe what i said. i think i read your original post too quickly, and in my response, i was re-reading your closing statement too closely.
nevertheless, lenders do not look at bank accounts as partial collateral for mortgage loans. until yesterday, when we all became the owners of fannie mae and freddie mac, everything in the mortgage industry (conventional) was based on what investors seek in their portfolio of mortgages. cross-collateralizing isn't anything that your standard investor could use to make him or her feel better about the risk.
i think in your most recent post, your reference to "the actual bank that holds the mortgage" really means that you recognize that you'd want to do business with a bank that holds its own mortgages, and is not active in the secondary market. forgive me if i'm too technical with my terms, by the way. secondary market is a reference to the investors who buy loans. a local bank or a credit union - in other words, community-based institutions - might be an appropriate channel from which to seek your loan. these might well be prone to retaining the loan in their own portfolios, which would give you a greater opportunity to cross-collateralize.
my comments earlier were written in relation to the mortgage market as a whole. frankly, i think you'll find the friendly, local institution that holds it own loans to be in the same category as dinosaurs are - extinct.
nevertheless, lenders do not look at bank accounts as partial collateral for mortgage loans. until yesterday, when we all became the owners of fannie mae and freddie mac, everything in the mortgage industry (conventional) was based on what investors seek in their portfolio of mortgages. cross-collateralizing isn't anything that your standard investor could use to make him or her feel better about the risk.
i think in your most recent post, your reference to "the actual bank that holds the mortgage" really means that you recognize that you'd want to do business with a bank that holds its own mortgages, and is not active in the secondary market. forgive me if i'm too technical with my terms, by the way. secondary market is a reference to the investors who buy loans. a local bank or a credit union - in other words, community-based institutions - might be an appropriate channel from which to seek your loan. these might well be prone to retaining the loan in their own portfolios, which would give you a greater opportunity to cross-collateralize.
my comments earlier were written in relation to the mortgage market as a whole. frankly, i think you'll find the friendly, local institution that holds it own loans to be in the same category as dinosaurs are - extinct.
Hi,
This would be a first mortgage. Your credit scores a relow, but lenders look at all factors including income stability, assets, and what you have done to restablish your credit.
Since the CDs would be an after closing step, the underwriters would not see that in your application. They will want to know what the fudsn are going for. Home improvement, debt consolidation, etc. Some limit how much "cash" you can take out for just cash.
In addition, the ttile history will be importnat to the underwriter as they will see the title in your names or your fathers name. It sound like the house will be a "gift" to you? You may need to wait until title has been in your name for 1 year.
This would be a first mortgage. Your credit scores a relow, but lenders look at all factors including income stability, assets, and what you have done to restablish your credit.
Since the CDs would be an after closing step, the underwriters would not see that in your application. They will want to know what the fudsn are going for. Home improvement, debt consolidation, etc. Some limit how much "cash" you can take out for just cash.
In addition, the ttile history will be importnat to the underwriter as they will see the title in your names or your fathers name. It sound like the house will be a "gift" to you? You may need to wait until title has been in your name for 1 year.
matt's comments are accurate.
once again, however, with a local lender who doesn't care about secondary market concerns, you may be able to eliminate what would ordinarily be requirements.
a point i only touched on before, but should have elaborated on is your credit scores. what you've told us will eliminate you from consideration from fannie & freddie loans altogether, frankly. your best bet for an everyday loan would therefore be in the fha programs. that's pretty much what i took for granted in my opening commentary.
once again, however; i have to keep coming back to the odds that you'll only find a local, community-based lender who'd be willing to overlook many of the ordinary requirements (title history, credit history, cross-collateralization).
needless to say, you're in the market for a liberal-minded lender, which is practically an extinct species as well.
once again, however, with a local lender who doesn't care about secondary market concerns, you may be able to eliminate what would ordinarily be requirements.
a point i only touched on before, but should have elaborated on is your credit scores. what you've told us will eliminate you from consideration from fannie & freddie loans altogether, frankly. your best bet for an everyday loan would therefore be in the fha programs. that's pretty much what i took for granted in my opening commentary.
once again, however; i have to keep coming back to the odds that you'll only find a local, community-based lender who'd be willing to overlook many of the ordinary requirements (title history, credit history, cross-collateralization).
needless to say, you're in the market for a liberal-minded lender, which is practically an extinct species as well.
I appreciate all the input. Thanks so much to everyone :).
Hi burkehenry,
Like they said above, look for a community bank. A community bank can make loans that seem nuts to the normal lender, because many of these "in-house" loans are given a yes or no by the board of directors and not an underwriter 2000 miles a way.
You will need to show more besides the equity in the property, but that is a great start . Community banks love to see loans done at 25% loan-to-value or even less. If your income levels are fine and you can show that the layoff previously is not likely to happen again then I think you may have a shot.
If that doesn't work I see no reason why Grandpa can not open up college cd's for the kids. Keep in mind if you use equity from your house to finance cd's for college that would actually be costing you money every month minus certain tax implications.
Say it cost 7% to get the loan for the cd's and the cd's only pay 4% then it's costing you 3% of the loan just to have that money sit there. Not a very sound financial decision.
If I may, I have no financial affiliation with the following but have heard through channels that their community banks do work with you, especially when you have excessive equity.
If there's one near you I would check them out first.
[Link removed as per forum rules. Thanks.]
Like they said above, look for a community bank. A community bank can make loans that seem nuts to the normal lender, because many of these "in-house" loans are given a yes or no by the board of directors and not an underwriter 2000 miles a way.
You will need to show more besides the equity in the property, but that is a great start . Community banks love to see loans done at 25% loan-to-value or even less. If your income levels are fine and you can show that the layoff previously is not likely to happen again then I think you may have a shot.
If that doesn't work I see no reason why Grandpa can not open up college cd's for the kids. Keep in mind if you use equity from your house to finance cd's for college that would actually be costing you money every month minus certain tax implications.
Say it cost 7% to get the loan for the cd's and the cd's only pay 4% then it's costing you 3% of the loan just to have that money sit there. Not a very sound financial decision.
If I may, I have no financial affiliation with the following but have heard through channels that their community banks do work with you, especially when you have excessive equity.
If there's one near you I would check them out first.
[Link removed as per forum rules. Thanks.]
Hi Burkehenry,
To keep it simple, it may be possible to qualify for an FHA mortgage that will have a low interest rate. When it comes to FHA credit score is not an issue as long as the credit is not completely destroyed and you can show the ability to repay such as good job history, income, etc.
To keep it simple, it may be possible to qualify for an FHA mortgage that will have a low interest rate. When it comes to FHA credit score is not an issue as long as the credit is not completely destroyed and you can show the ability to repay such as good job history, income, etc.