For hopeful homeowners with severely damaged credit, there’s a long road to travel to become “bankable” once again.
Thankfully, time heals all – even credit catastrophes. Those in “credit rehab” may find their mortgage options to be limited in the early days (typically because they don’t have a big enough down payment for a lender to take a chance on them). But there is light at the end of the tunnel.
The post that follows examines non-prime mortgage tactics and other “B” lending issues. We talked with Fred Testa and Greg Domville. Both are well-known brokers specializing in alternative lending (a.k.a. non-prime or subprime lending). They were kind enough to answer every question we threw their way.
This is a discussion focuses on their line with credit. This means they have been declared bankruptcy (BK) or filed a consumer proposal (CP). A consumer proposal is a deal with creditors to pay less than what you owe. For all intents and purposes, it’s possible to take credit risk standpoint.
Q & A on subprime lending …
What is the maximum available loan-to-value (LTV) right after I discharge a bankruptcy or consumer proposal (BK / CP)? Domville says it’s 75%, but it’s 65%. Expect a 1% + lender fee, and sometimes sometimes additional broker fees. (The most non-prime mortgages are those who didn’t charge a broker fee.)
Is it possible to get a mortgage before your BK / CP is discharged? Yes, says Domville, but it generally requires a private lender. Rates can be 8-9% or higher for a first mortgage, and 12% + for a second mortgage. But they are 1.5% to 3.0% on average, he says.
Does the story matter? If the client has a bad credit (eg, catastrophic medical issues), says Testa. “It’ll maybe save them 1/4 point or so. What does it mean? It’s still more than anything else. ”
What does he want to buy? “If you’re a client, you’ve gotten a 65% credit card case and you’ll have a private mortgage,” says Domville. “It’s generally a rule of thumb,” he adds.
When is re-established credit required? Prime lenders — BK / CP. (For more on that see here .) But Domville says, “Lenders granting approve the credit criteria. Said That having clauses, having clauses The sort some of the re-credit the ESTABLISHED the permit will of a Higher LTV and better information Rates. «Lenders Also Heavily weight derogatory credit and large debt loads the if for They the after discharge the On occur. Note: If you’re losing credit card payment
How important are home aesthetics to your lender? Marketability of the property is vital to non-prime lenders. Make sure the property looks decent for the appraiser. (All subprime approvals require an appraisal.) “Lenders consider it a minority of ownership,” it’s not a problem. , etc.
Will lenders know if you missed a mortgage payment? Most lenders still don’t report mortgages to the credit bureaus. HOWEVER, «Many alternative lenders do condition for for LEO previous mortgage history,» of He says. Missed payments after a BK / CP will reduce the LTV and increase the rate. If you find a lender willing to overlook a missed payment after discharge, expect the “best case” 75%, Domville says.
Can you refinance a past due mortgage? Yes, where the first mortgage rates are 8% -plus on average, ”states Domvile. “Maximum LTV is 65%. Exceptions occur with higher LTVs, but don’t bank on it. ”
Non-prime Hits Prime Time …
“ It’s used to be,” says Testa. “In many ways, brokering in the late 80s and early 90s was today. Amortizations were up to 75% and not 80%. If it was the first mortgage to 75% or 85%. We’re going back to the past. A lot of the young brokers haven’t been through those times. ”
Coming Trends in subprime: Testa says MICs going mainstream. MICs will make it a “big time” dent in the market because “they are not federally regulated.”
2nds growing in popularity: in second mortgages now, even compared with a few years ago. But there is only a fraction of the pre-credit crisis. MICs will be motivated to fill in the gap, he says. They’ll do 2nds to 80%, or even 85% LTV.
Rob McLister, CMT