Perhaps the most common reason for hard money requests comes from borrowers with credit issues preventing them from getting a mortgage at their local bank. Sometimes, an FHA or VA loan may work, as it is more lenient in its credit standards, but too often borrowers do not meet those guidelines, either.
Before the advent of the FICO score, underwriters based their decisions on a manual review of the borrowers’ credit history. If there were occasional late payments, perhaps a strong explanation letter might suffice. If the borrower had other mitigating factors, such as strong savings, many years at the job or other positive attributes, underwriters would then consider those as well. This is no longer the case in today’s conventional mortgage banking world.
So, how is credit reporting done. Well, when you borrow money, whether through a revolving account (like credit cards) or an installment account (like an auto loan or student loan), this information is gathered by credit bureaus (more on that later). The data the bureaus have in your credit files is used to calculate your credit score. Your credit scores are determined by five major factors:
- payment history
- your debt usage
- age of credit accounts
- types of accounts
- the number of inquiries on your credit
These scores are then used to determine your risk factor for future loans. The three-digit FICO score is a numerical representation that indicates how risky a borrower you are from a lender’s perspective. A higher credit score can help improve the terms and conditions you qualify to buy a home, finance a car, rent an apartment, apply for a job, buy insurance, purchase a cell phone, or open a new credit card.The best way to have healthy credit is to remain responsible about the credit cards or loans you have. Using credit irresponsibly by making late payments and maxing out credit limits can have damaging effects on your credit.
At Cushner Capital Group, we make loans to borrowers with imperfect credit scores. And while we do pay strict attention to credit scores, we are do focus on the entire credit history. We fund borrowers with bankruptcies, foreclosures, repossessions and mortgage lates. Of course, rates and costs reflect the perceived risk.
In most cases, these hard money loans work for borrowers, who have equity but rough credit, as a temporary fix until they are qualified again for conventional bank loans and better rates.
If this describes your situation, please call us for mortgage advice. We may be able to help. Call us at (760) 845-9035.