Depending on your credit score and your buying habits, you might receive a few or a lot of pre-approved offers in the mail. But there is something else that determines whether or not you get them.
Pre-approved doesn’t necessarily mean that you will get credit or that you will get the terms mentioned in the offer. All it means is that you are in the category of people who fit the marketing strategy of the company offering credit.
Here’s how it works.
You fit the profile of the marketing list that is sold by the credit bureaus to someone looking for more customers. Maybe your credit score is in the range they specified. Maybe your income fits what they have deemed their ideal customer. You might have a certain amount and type of debt they think makes you a good customer for them.
Or maybe you just had your credit pulled for some kind of purchase. When you apply for credit, there is a much larger chance that your information will be sold to other creditors who offer the same type of credit.
I just had it happen to one of my clients today. He applied for a mortgage and I had his credit pulled. Within a day, he got a phone call from a guy who said, “We pulled your credit.” This was a lie since I was the only one who had pulled it but the guy had a shocking amount of information about my client, including his phone number and email address.
The guy was really smooth and almost had my client applying for the same loan I am doing for him because he thought he was talking to someone in my office. When he realized they guy wasn’t working for me, he ended the call but had already given him a fair amount of personal information.
If it sounds invasive and covert, that’s because it is.
The point is that your personal information is being sold to as many people as the credit bureaus can sell it to. Even though they can’t sell your social security number, they can sell most everything else and the rest of it can probably be found on your social media sites (mother’s maiden name, birth date, first car, etc.).
So now that they have enough information about you to sound logical, they can call you or send you offers in the mail, some of which look like they are from your current creditors if you don’t look too closely. They know your credit card balances, your mortgage company, approximate credit score and plenty of other information.
Then they send you offers. The offers always sound great because they assume you will qualify for the best terms they offer. I wonder what percentage of the people who respond to the offers actually get those ideal terms. My guess is that it’s pretty low.
If you don’t qualify for their best terms, you may get a decent offer anyway. Maybe you will get a lousy offer. Or maybe you will just get an extra ding on your credit because you allowed them to pull it before they said no.
The bottom line is that pre-approved offers can be okay but it isn’t really that hard to locate the type of lenders you need so wouldn’t it be better to just locate them yourself? That way, you are in control of who you talk to and you know who you are calling instead of wondering if you are being scammed by a cold caller offering you money.
Fortunately, there is a way to stop the pre-approved offers if you don’t need extra paper for starting fires in the winter. And it’s really easy to do.
All you have to do is go to https://www.optoutprescreen.com/ and you can either opt out for 5 years or permanently. Opting out for 5 years can be done online. If you want to opt out permanently, there is a form to fill out and mail in. The website and ability to opt out are mandated by the Fair Credit Reporting Act.
If you ever decide you want to receive pre-approved offers again, whether it is because you’re lonely without all that mail, need a stranger to talk to on the phone or just because you need more offers to make sure creditors are still interested, you can always opt back in.
When you opt out for 5 years, there is a really easy way to keep track of when it is time to renew. It is when you start receiving offers again. My 5 years is up and so is my volume of mail. I guess it’s time to go back in and turn off the junk mail faucet.
Last week I announced that non-prime loans are back and in this post I want to give more information about one the loan types that fit into this area: bank statement loans.
This loan type is specifically for business owners and independent contractors.
It was designed to help in those situations where there is enough income but where income taxes won’t work because there are too many write-offs, resulting in a low net income on your income taxes.
Using bank statements to prove income can make it possible to buy a home or refinance one even though banks can’t help you.
These loans can be done with business bank statements or personal bank statements. This can be very helpful for those who don’t have separate bank accounts for their business and personal money.
This program can even be done if you have a regular job and a side business. In that case, we would get pay stubs to show income from your job and bank statements to show income from your business.
It wasn’t too long ago that I did one where the borrower had a regular job and a had a side job as an independent contractor. In that case, his taxes hadn’t been filed yet so the only way to get him approved was by using the bank statement program. It worked beautifully and I was able to get him about $200,000 in cash out of his property and still reduce his monthly payment.
And in case you were wondering, these loans have rates fixed for 30 years and for owner-occupied homes, there are no prepay penalties.
At the moment, the minimum credit score for this program is 640. If you need help getting your score up to that, give us a call and we can coach you on what to do to increase your score.
For more details and to see if this program could work for you, call us or fill out the contact form on the Contact page of this website and we can go over your situation to find what solutions are available.
You may remember a couple of months ago when I told you that many of the loan programs that had been available didn’t exist anymore. Whether you remember or not, I have some good news!
Some lenders who stopped doing loans a couple of months ago have come back into the market and started lending again. The programs have changed a little but they are not too different from what was available before.
Of course, some of the more aggressive aspects of their loan programs do not exist today and that is probably a good thing because some of them made those loans a bit too risky. I am all-in to help people who should be able to qualify for a loan but can’t get help from banks. But making risky loans caused some problems around 2008 and we don’t want a repeat of that.
Back to my announcement that non-prime loans are back.
When non-prime lenders left the market and stopped lending, a huge void was created between bank loans and hard money loans. For those who could normally qualify for something in the middle, they either had to pay the higher rates of hard money or they had no options at all.
The huge void that was created when those lenders left is no longer empty. Having these types of loans may not seem like a big deal but for those who can qualify for them, it can make a huge difference in what they can afford, whether it is for a home they are going to live in or an investment property.
In case you aren’t fully familiar with non-prime lending, it is the type of mortgage that exists to help people who fall in between bank lending and hard money. Simply stated, the qualifying guidelines and rates are easier than bank loans and the rates are better than hard money.
They are similar to the old subprime loans but without the major faults of those old programs, like having a 2-year fixed rate and a 2-year prepay penalty.
There are a lot of details that would probably bore you to tears so rather than give you all of them, I will just list some of the highlights:
- All loans have fixed rates for 30 years
- Rental properties can use rental income to qualify
- Bank Statements can be used to prove income
- No prepay penalties on owner occupied properties
Since there are many other details, if you want to know if this type of loan can help you, call us or go to the contact page of our website and submit a contact form.
What is a Bridge Loan?
There is a common misconception that a bridge loan is just a short term loan. Correctly defined, a bridge loan is where someone is buying one property before selling another one and they need to get a short term loan until they sell the property they already own.
It is called a bridge loan because it bridges the gap between buying a new property and selling a property you already own.
The problem is that banks don’t do bridge loans. They focus on the very plain and uncomplicated loan types that don’t require a lot of expertise or creativity to figure out. This is probably because most banks sell their loans and the people who buy them are investors, not seasoned mortgage professionals.
One of the many different uses of hard money is the bridge loan. Hard money is the ideal vehicle for them because decisions in hard money are generally made by an individual and not a board of directors. And even if the individual who is lending the money isn’t an expert in mortgages, he or she can be educated quickly so that they understand.
So how do bridge loans work?
There are 3 ways to do a bridge loan:
1) The loan is secured by the property being bought.
2) The loan is secured by the property being sold.
3) The loan is secured by both properties.
Which one is best will depend on the situation. Some of the factors involved are how much down payment there is (if any), how much equity is in the property already owned, the value of the property already owned and the purchase price of the property being bought.
Most bridge loans are for 12 months or less although that can be negotiable. This is why some people think of any short term loan as a bridge loan.
One of the biggest advantages of bridge loans is that the requirement for proving income is waived for this type of loan, regardless of whether either of the properties will be owner occupied or a rental property.
If there was a single thing that one should know about bridge loans, it is that they are all about figuring out how to make the numbers work. Anyone who is expert at doing them should be able to figure out the numbers in a couple of minutes and let you know if there is a way to do the loan.
So if you have any questions about whether you qualify for a bridge loan or if one could solve the problem of trying to buy one property before selling another one, ask someone who has done them before.
Most people think that hard money loans (also known as private money loans) qualify as creative financing. But the truth is that just because a loan is hard money, it doesn’t mean that it’s creative.
Someone who has bad credit or a property that is in poor condition will probably have to use hard money for a mortgage. But it can be pretty straightforward and doesn’t need to be creative at all.
If you look at the facts, getting a higher interest rate and probably paying more points than you would for a different type of loan doesn’t seem very creative.
So what does a creative loan look like?
One example that we just closed this week involved a guy who wanted to buy a property but didn’t have any money for a down payment. And since there aren’t any loan programs for buying a rental property with no money down, most loan officers would have turned him down.
But that isn’t what happened.
It turned out that he owned another house that had a lot of equity in it. So instead of turning him away, we used that equity so he could buy the house he was interested in. The loan used both properties, being a first mortgage on the one he was buying and a second mortgage on the one he already owned.
Another example is a borrower who needed to refinance a property that had major fire damage. The property had 3 units before the fire and two units afterwards. Obviously, no bank would give anyone a loan on that property.
But we came up with a solution to it. Instead of going through the complicated process of doing a construction loan, we had the property appraised based only on the two remaining units.
Since the loan was based on the as-is value, there was no need to have any money held back to cover construction costs. The borrower had been looking for a solution for a while and was unable to find anyone to help them. Fortunately, the solution seemed pretty obvious to us and we got the loan done quickly.
There are many other examples of how to take a situation that doesn’t seem to have a solution and figuring out a way to be creative, coming up with a simple solution to get the problem handled.
So when you think of creative financing, it isn’t true that all hard money is the same. It is important to find someone who cares enough to look for the solution to your problem, whether that person needs to be creative or not.
The best way to look at it is to find out if there is a simple solution. Complicated doesn’t usually work and causes confusion. Simple is almost always better.