I apologize in advance for the long post but this is important information to have and I don’t want to leave anything out.
Recently, I have been seeing a lot of borrowers who were trying to pay off loans that had unfavorable loan terms that were causing them problems.
Honestly, I would call some of them predatory but the lending laws that define predatory lending don’t apply to business purpose loans so even if these terms are unfair, they are still legal in most cases.
Here’s what to look out for:
1) Default rate: a default rate is when the interest rate goes up in the event that you go into default on your loan. It can be triggered when you become late on the loan or when the balloon payment is past due. Depending on how it is written, it can be reduced back to the original rate when everything is paid current or it may stay at the higher rate until the loan is paid off. I have seen default rates where the interest rate went up by as little as 4% or by as much as 12%.
If you have had a lot of recent late payments, you may end up with a default rate but don’t accept one that you can’t deal with or one that keeps the default rate in effect even after you have paid everything current. The problem with a default rate that can’t be reduced is that it makes it incredibly difficult to make your payments, especially if your payment is increased by 50% or 100%.
2) Late payment penalty on a balloon payment: When a balloon payment is due and isn’t paid within the grace period that is granted on each other payment on the loan, some lenders charge a late payment penalty just as if the balloon payment were a normal payment.
This could be 10% of the loan amount which can make a huge difference and can make the difference between being able to refinance and losing the property in foreclosure. For example, if you borrowed $400,000 and there was a 10% late fee on your balloon payment. your penalty would be $40,000.
3) High attorney fees on a foreclosure: For California properties, it isn’t necessary to have an attorney involved in a foreclosure but some lenders do it anyway. This can add thousands of dollars in fees the borrower has to pay.
I just closed a loan for a borrower whose balloon had come due and the lender not only started the foreclosure process but also had an attorney involved. In addition to approximately $2,200 in foreclosure fees, there were over $14,000 in attorney fees which were entirely unnecessary. I can’t tell you who the lender was here because I don’t want to get sued but if you are getting a loan and want to know what to watch out for, I would be happy to tell you.
4) High loan fees: This one is very subjective but if you are paying over 5 points in fees and it isn’t a small loan, you can probably do better without trying very hard.
And if your loan includes a bunch of different fees, that could be an indication that you are being charged too much. We normally charge a processing fee and a document preparation fee but if you are also seeing things like an inspection fee, funding fee, document review fee or various other fees that you may not even know what they are really for, that may not be the place to go for a loan.
How you can avoid these things:
1) Make sure to read and understand the terms of your loan. If you don’t understand something, look up the words you don’t understand in a dictionary until you do understand what it says. A verbal explanation from your loan officer won’t change what it really means and the loan officer may not understand it either.
2) Don’t wait until the last minute to refinance your loan. The way a lot of these bad loans end up getting done is when a borrower is running out of time and doesn’t have any other options so they take whatever they think they can get.
Knowing when your loan is due or when it needs to be refinanced can save you a lot of trouble and money. I recently read the terms of a loan done by another broker that gave the broker the ability to automatically extend the loan for 6 months at a time and to charge the borrower 1.5 points (equal to 1.5% of the loan amount) each time they did it. At that point, they had made an extra $25,000 off of that borrower.
3) Make sure the loan will work for you. Even if it is a temporary solution, it is vital that you know you can meet the terms of the loan and, if necessary, get out of it and into a better loan as soon as possible.
Even if you are in a tight spot, it doesn’t make sense to take a loan you either can’t make the payments on or can’t get out of. You would probably be better off selling the property and getting your equity out of it.
4) Don’t believe anyone who says you have no choice but to accept their offer. It is incredibly rare that there is only one lender who will do a loan and most loan officers who tell you that you don’t have any choice are really just using pressure tactics to get you to do the loan.
This is a classic shady sales tactic and usually tells you the loan officer is not really on your side. They may only have one option for you but if you don’t like it or it doesn’t work for you, don’t take it.
5) Do everything you can to keep your mortgage payments current. This will help to put you in a position to get a better loan and not have to deal with any of these terms. However, some lenders who offer lower rates will still include some of the terms listed above.
My preferred lender for non-hard money alternative loans offers 30-year loan terms instead of short term loans with default rates and other potentially predatory terms. What this really means is that there are options and you don’t have to take a loan you don’t like just because it is the only thing being offered.
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.
The purpose of this post is to explain how to avoid a property tax sale for those who find themselves getting behind on their property taxes. There is no doubt that it can be a scary situation but there are solutions.
In California, a property can be sold at auction after property taxes have remained unpaid for 5 years. Depending on whether you are looking to save a property from a tax sale or buy one at a tax sale, this could be good or bad.
For those who have fallen behind on property taxes, it is important to know what to do to avoid losing your property. Knowing the 5-year rule gives you the timeline for when it could happen. If you are two or three years behind, you still have some time but if you have reached the 4-year mark, it’s time to do something now before it’s too late.
Some county tax collectors will let you make a payment arrangement to get caught up on your taxes but if you are too far behind, they may not agree to do so.
Another solution is to get a mortgage on the property to get the taxes caught up. In many cases, the new lender will want to have property taxes collected with your mortgage payment to prevent the same situation from happening again.
Delinquent property taxes don’t go on your credit report so they won’t hurt your credit score. This makes it possible to get a regular bank loan if everything else fits their guidelines. But if you can’t get a bank loan, hard money can be used to solve the problem if there is enough equity in the property.
Fortunately, hard money can be a fast solution to this. I have done multiple loans in the past to help homeowner’s save their property from tax sales. The first one I ever did closed in 4 days, closing on the final day before the auction. It was a close call because the client waited until the last possible moment to try to get a loan.
Yesterday, I got a call from a loan officer who has a client who inherited some properties and didn’t realize that because it wasn’t from a parent, the property taxes had increased after each property was reassessed. The client kept paying the old amount which is thousands of dollars less per year and is now in danger of having their these properties sold at auction to pay the delinquent property taxes.
To make matters worse, the properties this client owns are free and clear (meaning they have no loans on them). Yikes! That could be a disaster!
The loan officer who called me can now help their client save the properties with hard money loans as a temporary solution until a more long-term solution can be found. This will avoid the loss of hundreds of thousands of dollars.
For more information on how to get a hard money loan, regardless of the reason it is needed, fill out the contact form no this website or call today.