David Saks

                                                      

"C" credit might equate to no credit for some in today's lending environment.

The borrower is facing considerably higher interest rates, Loan-to-value numbers come in at 75% to 80% of the appraisal, and it's just a tougher loan to risk, period.

Here are some additional factors to consider. If a borrower has a "C" on the report card they must have :

• Fair credit last 12 months.

• Job stability - one year in the same profession (can be six months for some lenders).

• Debt ratio (house payment, installment & revolving) not over 55% (probably much less for some lenders in todays new lending environment) of gross income.

• Consumer credit . 30-day late payments might not be counted, no more than five 60 or three 90 day lates or delinquincies.

• Mortgage credit . no more than twelve 30-day late payments (although I'm skeptical about this)

one 60, one 90 in last 12 months.

• Liens, judgments or collections must be paid if they affect the title to the property.

• Bankruptcy . at least two years since it's discharge and a fair credit history since the discharge.

Again, this isn't a strict rule of thumb here, just observation and a little research, and I'd like to hear from our mortgage and lending community. I think our community of lending pro's have a lot to say and I'm counting on them to set the record straight.

 

 

 

 

                                                    

Lenders are beginning to push the real strict risk thresholds here.

This risk comes with a Higher Interest Rate, Loan-to-value is ususally at 80% to 85% of the appraisal, LTV might be as low as 75. And things are getting tougher by the minute.

"B" CREDIT Must Haves

• Fair credit last 12 months.

• Job stability . 18 months in same profession.

• Debt ratio (house payment, installment & revolving) not over 55% of gross income.

• Consumer credit - up to five 30-day late payments, one 60 and one 90.

• Mortgage credit - three 30-day late payments, no 60 or 90 in last 12 months.

• Liens, judgments or collections must be paid if they affect the title to the property.

• Bankruptcy . at least four years since discharge and good credit since the discharge.

These are just a few things to consider although I encourage our lending community to chime in and include their thoughts or corrections !

Next : "C" Credit

                                                 

Things get a bit stricter here, but it's safe to say that your still in good territory if you meet the following criteris.

I spoke with one of the local lenders and he told me that these are a few of the things that they look for generally if your considered an A minus type borrower.

• FICO is not a factor if you've had good credit for the last 12 months (although I'm not sure about this one, so help out mortgage folks)

• Job stability - two years in the same profession, on the job

• Debt to income ratio (house payment, installment & revolving accounts) not over 55% of gross income

• Consumer credit - up to four 30-day late payments, one 60 but no 90 late notices on your record

• Mortgage credit - one late payment in the last 12 months

• Liens, judgments or collections must be paid if they affect the title to the property

• Bankruptcy . at least four years since your discharge and you've had good credit since

Some of these requirements may be changing now because of tough new lending standards, so fill us in below if you can think of anything we need to know.

Now, interest rates might come in at slightly higher numbers for the A minus borrower and these are just a few of the things I've discovered associated with this rating.

Can you add anything ?

Next : "B" Credit

 

                                                   

The difference in "A" and "AX" are that a few late payments are ok with this type of rating if your lender decides to brand you with it !

Here are a few of the fine points about the "AX" loan that I've discovered here and yonder.

"AX" CREDIT

 

• You have to have had Good credit for the last two years

• You need Job stability - two years in same profession

• Your Debt to income ratio (house payment, installment &

revolving) not over 55% of gross income

• Consumer credit - you may have up to four 30-day late

payments, no 60 or 90 late notices

• Mortgage credit - you may have one late payment in the last 12

months

• Liens, judgments or collections must have been or must be  paid if

they affect the title to the property

• Bankruptcy . at least four years since discharge- good credit since the time of the discharge

Now, a few facts regarding eligibility :

If you have an "AX: rating you qualify for the

Best Sub-Prime Interest Rate

 

Loan-to-value 90% - 95% of appraisal

Rate and Term Refinance . 90%

Cash Out Refinance . 90%

Stated Income Program . LTV 85%

Investment Property . 80%

....and maybe even a few other perks.

Any thoughts or additions to the list ?

Next : "A-" Credit

                                                    

Just what exactly is "A" Credit ? Is this what the lender is looking for ?

Times are changing and so are the lending requirements, and it's getting tougher.

"A" CREDIT

 

• Excellent credit for the last two years

• Job stability - two years in same profession

• Debt ratio (house payment, installment &

revolving) not over 55% of gross income

• Consumer credit - two 30-day late payments

but no 60 or 90 day late payments

• Mortgage credit - no late house payments in the

last two years

• Liens, judgments or collections paid and none

in the last two years.

• Bankruptcy . at least four years since your discharge

- excellent credit since

....and what can you qualify for ?

Best Interest Rates

 

Loan-to-value 95%-97% of appraisal

Rate and Term Refinance . 90% LTV

Cash Out Refinance . 80% LTV

I suppose it's safe to say that if you meet the criteria you have excellent credit.

Can you think of anything else ?

Next : "AX" Credit

                                                 

I thought that it might be a nice thing to alert you to a few facts about watching your back when your out in the field.

This first tip is about dealing with strangers, and I'll make it brief.

Never think for a moment that we're unapproachable or inaccessible to crime and the destructive elements that accompany the slimeballs that lurk among us.

Everyone can become a victim of these diseased lunatics.

You have to remain vigilant. Especially in these tough days ahead.

Remember Sarah Walker, for starters.

Now, I'm not one to try to come off as authoritative, but I want to protect my friends, business acquaintances and family, so I'll just say this:

Don't ever meet a stranger or a potential buyer, that you believe hasn't been, or isn't, qualified, alone at any property that they request to see no matter how polite they appear to be.

Try to meet clients at your office first or you might be flirting with danger, with disaster.

Always be careful ! Always be safe !

Do you have any real life experiences you'd like to share, or any thoughts ?

Next : Protecting Valuables

                                                  

This is a clause that will alow a buyer to rollover a loan for a like period of time ( or perhaps a prescribed period of time) after the loan becomes due and payable in full.

This type of clause is really useful in the case of a balloon payment when it becomes due and payable.

Another use of the rollover clause has been a way to enable a seller to give the buyer notice (usually 48 hours) to confirm a contract. If the buyer is unable to confirm the seller may cancel the contract after the 48 hours has elapsed and sell to another buyer, hence rollover to a new contract for the sale and purchase of real estate.

The clause might even be used to buy more time to pay off a loan.

Make sure you get competent and experienced legal advice when considering any clause !

Chime in legal eagles !

Any thoughts !

Next: The Acceleration Clause

                                                 

Basically, when a contract is wrtten for real estate two types of contracts are used.

1. The Specific Performance Type

2. A Receipt and Option Type

An 'earnest money' clause can define which is which.

When earnest money is put up we consider this a good faith deposit which is a pretty good indication that the buyer has honorable intentions of purchasing the property.

But let's say, as an example, that the buyer decidesto change his or her mind. The buyer has decided that they don't want the property. The buyer has decided not to go through with the deal.

Now, this is where any items in the contract that have to deal with the earnest money and any conditions associated with it surface. Clauses and conditions surrounding the earnest money are ready for review.

There might be something in the contract, a clause for example, that says that "the seller may keep the earnest money deposit and that the seller may also proceed to take any legal action necessary to force the "specific performance" of the contract, or the seller may sue for "liquidated damages".

Liquidated damages, or ascertained damages, are damages whose amount the parties agree upon during the formation of a contract for the injured party to collect as compensation if the contract is breached.

But let's say for example, that you include an option clause that will limit the seller to only the amount of your earnest money if you fail to perform as the buyer. With an option clause like this the seller can't force you to buy or sue you. But you lose your earnest money, and that's a lot better than losing your shirt, isn't it ?

Now remember, there are some weasel clause that will let you back out of the loan without losing anything.

Any thoughts ?

 Next : The Rollover Clause

                                               

What a buyer, or better yet a seller-financed buyer gets with this type of clause is some confidence. More specifically, confidence that a buyer or an investor will have relying on a specific income ceiling if leasing a property.

As an example:

Let's say that your mortgage payments are 2000 dollars a month and your depending upon the mortgage payments to be tied to 75% the net operating income of a business.

As long as the net operating income of the business at least remains at $2,666.67, you'll see that 75% of the net operating income is two thousand dollars and will satisfy the mortgage payment requirement since 2000 dollars is 75% of the net.

If your the lessee, if the net operating income falls to 2000 dollars, then you would only have to pay the landlord 1500 dollars with a performance clause governing the percentage of the net operating income to the amount of rent your required to pay.

The downside to a performance contract is that the lender or landlord might not get paid anything if there isn't any income from the property or business for the corresponding month. This is more of a protective clause for the buyer or investor.

Always get responsible, competent, experienced legal advice !

Any thoughts from our lenders ?

Next : The Option Clause

                                         

Subordination is a term that we're all familiar with.

If you have two mortgages on a property and you refinace one of the mortgages, the subordinate mortgage, the second mortgage, is going to move up in the servicable pecking order; in other words, mortgage hyponymy, class, position, rank and file.

As an example, if you have a first mortgage for 100 thousand dollars and have a second mortgage of 20 thousand dollars and you want to refinace the first mortgage to 200 thousand dollars, you have to pay off the first and second mortgages before you can refinace to the larger loan value.

What happens is that if you fail to pay off the second mortgage it automatically becomes the first mortgage, a new pecking order, and you could really have some trouble on your hands with the lender if your not careful about your position and the way the refinance takes place if the mortgage in the first position isn't satisified.

The 2nd mortgage automatically becomes the first mortgage when the first mortgage is paid off.

When you eliminate one of the mortgages the next mortgage in line will take the place of the one that's been eliminated.

Since the mortgages don't indicate which position (1st, 2nd, 3rd, etc.) they're in by virtue of the language contained within the body of the mortgage, the governing factor over which position they're in is time. More specifically, the time that they're recorded, with the earliest recorded mortgage having seniority, or the first position in the queue.

It's generally understood that most lenders want to occupy the first position.

If you believe that keeping the second in the second position is advantageous to you, because of something like a low interest rate on the mortgage, then the use of a subordination clause can accomplish this.

Now the property can be refinanced without having to pay off the second mortgage.

Chime in lenders !

Next: The Performance Clause