Mortgage and Portfolio Loan Guide

What is a Land Contract?

What is a land contract?

A land contract (or contract for deed) is a popular way to purchase or sell a home without having to deal with banks or lenders. The seller acts as the lender. This is an attractive route to take if the property that is being sold is unique, or if the buyer of the home cannot get approved for a mortgage for one reason or another.

buying a house on land contractWhen selling a home on land contract the seller acts as the private lender. The buyer provides down payment and makes monthly installment payments to the seller for an agreed upon period of time at an agreed upon interest rate. Usually land contracts are done on a 3 – 5 year balloon. Meaning the borrower makes mortgage payments on a 15 – 30 year loan structure, but in 3 – 5 years the existing balance needs to be paid in full (home is sold or refinanced with a bank at that time).

It’s a good idea to have the land contract recorded with the county in order to have a paper trail and make it official. Many times the seller won’t be willing to sign over the deed until the land contract is fully exercised. This means that the buyer doesn’t technically take full ownership of the property until all payments are made on the land contract.

Advantages of Selling on Land Contract

Imagine you’re trying to sell your home. You have several offers, and one is finally accepted. The inspection is done and shows that there are some significant issues with the property. It’s agreed that the degree of the issues are so serious that a lender would never approve the loan. This is because the appraiser would certainly have a laundry list of expensive items to be repaired before closing.

The good news is that they buyer is an experienced builder and could do most of the repairs himself. land contract winningThis is the perfect opportunity for a land contract option to be explored! The seller still gets to sell his home, and the buyer still gets to buy.

In addition to being able to accept a large down payment up front (usually 20% – 30%, selling on land contract also provides an opportunity for the seller to receive a steady flow of income. This would be for the duration of the land contract, and earning interest all the while.

Advantages of Buying a Home on Land Contract

With lending guidelines being pretty strict, it can be tough to get a mortgage if you have had credit issues recently, or have a unique income situation. A land contract may be your only option if you’re looking to buy in some cases.

This is great because it still gives you the opportunity to own your home! You can do upgrades, have pets, and live theland contract thumbs up American dream. It’s your house. Just make sure the county knows that. Get the land contract recorded when you buy.

The other advantage is that you get an opportunity to re-establish your credit. Making your land contract payments on time month after month will set you up for success when it’s time to refinance out of your land contract. Since the land contract holder will not be reporting your monthly payments to the credit bureaus (like a normal mortgage) you want to keep strict records of your payments. When it’s time to refinance the new lender will want to see a history of those payments to ensure you were on time, and consistent. If there were any late or missed payments your approval on your new loan is likely to be impacted.

Lastly, a land contract is great if you are a new business owner. Many times lenders will want to see 2 year’s tax returns before lending to self-employed borrowers. See here for an exception to that.

Refinancing out of Land Contract

As mentioned above most land contracts are done on a short-term, with the full balance being due at the end of the term. While you’re in the home you want to do everything you can to prepare for that. Think about the reason you bought on land contract… work on that.

refinancing out of land contractWhether there were credit issues, income issues, or property issues. Get squared away. The last thing you want to do it spend 5 years making payments on a land contract and find out that you can’t refinance because of how you filed your tax returns. Or maybe the property still needed a new roof and now the appraiser still won’t approve it on your new loan.

You don’t want to be in a position where you can’t pay the remaining balance on the land contract. The land contract holder is likely to take the property back if the terms of the contract allow. There may be negotiating room in the balloon depending on the individual. But do yourself a favor, and don’t make it come down to that. Get your ducks in a row, and be ready to refinance out of the land contract when it’s time.

Rates on land contracts tend to be a bit higher than what you’d typically see on a mortgage. If the land contract allows you to refinance before the balloon without pre-payment penalty, take advantage of that. As soon as you’re in the right financial position do what’s best for you. There is no need to stay in financing terms that are not appropriate for your situation.

An Alternative to Land Contract | Portfolio Loan

So often people think that if there is a unique borrower scenario, or a unique property scenario, a land contract is their only option. That’s true in some cases, but NOT all cases. If the situation is unique, a portfolio loan with a local lender or credit union may be your saving grace. These loans are funded with your local credit union or small bank, and is not sold on the portfolio loan great alternative to land contractsecondary market.

It stays in-house. So the lender is able to take more of a common sense approach than any other loan available.

Portfolio loans are designed to serve clients who fell on hard times, but are now back on their feet. Portfolio loans are also a great option for unique properties like non-warrantable condos, or homes zoned in commercial areas.

I invite you to reach out to me.

portfolio loansIf you are looking to refinance out of your land contract, or you want an alternative to buying on land contract,  reach out to me directly.

I talk to folks all over the country every single day who are relieved to find out that portfolio loans exist, and are often a fantastic alternative to buying on land contract. I have closed many portfolio loans for people who thought that a land contract was their only option.

We truly do our best to take a common sense approach to get you approved. If I cannot help, I will do my best to connect you with the right lender to meet your home ownership goals.

So give it a shot. At the very least, you’ll walk away with a plan to set you up for success.

pre approved home loan


 

Buying a House on Land Contract Eveything You Need to Know

 

What unique scenario have you seen where a land contract was the perfect solution?

Land Contract | What you need to know now!

Adam Lesner | NMLS 198818 | Troy, Michigan

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona, California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.


What is a Portfolio Loan?

Here’s the deal… there is no such thing as a cookie cutter scenario when it comes to home financing. Whether it’s FHA, Conventional, Jumbo, VA, USDA, etc… everyone’s situation is different. If you do not qualify for traditional financing a portfolio loan may be your ticket to mortgage approval.

Portfolio loans are a step beyond unique.

What is a portfolio loan?

Portfolio loans are designed to get folks approved when they are not eligible for any “normal” type of financing.

These types of mortgages are commonly funded by small banks or credit unions, and are kept in their “portfolio”. The reason portfolio loans are typically found at local banks or credit unions is simply because these companies are more home-grown than your common mega lender. They have every reason to help their local economy grow. They know that if they give a borrower a chance when no one else will, they will be a loyal client for life.

Small banks and credit unions are built more around relationships than any lender you’ll find. They are willing to take the risks because they look at the whole picture of a borrower’s situation.

Getting a portfolio loan is more of a common sense type of approach to mortgage lending, unlike your conventional/FHA mortgage that is pretty much a check-in-a-box, black and white type of approval process. With a portfolio loan, the story matters.

When is a portfolio loan necessary?

portfolio loan past credit issuesRecent Credit Issues

Many times a portfolio loan is called for when a borrower has damaged credit. Maybe their credit was ruined because of a nasty divorce. Maybe their credit was ruined due to an injury. This would have an impact on their ability to earn for 12 months.

Sometimes this forces foreclosure, possibly bankruptcy. Really any situation where the borrower was in a rough patch, but now is back on their feet.

You see, with any normal type of mortgage, there is a waiting period you have to meet before being able to buy a house. Usually it’s at least 3 years before you can do anything if there was a recent bankruptcy or foreclosure. But should it really be that way if the situation was truly temporary, and the borrower is back on their feet? The answer is no. The result, Portfolio Loans.

Examples of recent credit issues:

  • Bankruptcy
  • Foreclosure
  • Short-sale
  • Ex-spouse ruined credit during nasty divorce
  • Piled up medical bills
  • Misc. collections
  • Tax lien
  • Judgment
  • Low credit scores due to high credit card balances
  • Late payments in last 24 months

Unique Property Type

Sometimes the property that the borrower is looking to buy or refinance is particularly unique. So unique that it does not meet the necessary guidelines to be eligible for conventional, FHA, etc. financing.portfolio loan unique property

This is common with condominiums because the homeowners association gets a full review by the lender to determine its financial stability. Many times condos are deemed “non-warrantable” because the complex or homeowners association does not meet the Fannie Mae, Freddie Mac, or FHA condo guidelines. [full article on Non-Warrantable Condos here…]

Examples of why condos are sometimes deemed as non-warrantable:

  • Homeowners association has a lack of reserves
  • Inadequate insurance coverage
  • Inadequate flood insurance coverage
  • Too many units are tenant occupied (renters)
  • The complex is under construction or in a phase that calls for more construction
  • Too many units are owned by 1 person or entity (investor owns high percentage of units)

Other unique properties that may call for a portfolio loan:

  • Commercially zoned property that is being used as residential
  • Berm home
  • Log cabin (if not typical in the market)
  • Any type of home that an appraiser has a difficult time finding comparables for (recent sales of similar homes)

Foreign Nationals

When folks move to the US and want to buy a house right away, they are commonly faced with 2 major problems: they don’t have credit established in the United States, and they do not have income established in the United States.

This is a perfect opportunity to pursue a portfolio loan. There are some main things the borrower would want to provide if they are a looking to get a portfolio loan, and are new to the United States.

A foreign national would want to provide:

  • Type of VISA, and all VISA applicable documentation
  • Previous 2 year income history in previous country (paystubs/tax returns)
  • Asset statements
  • Letter explaining intent to stay in the US
  • Proof of income established in United States (employment letter, paystub)

Investment Property Loans | Approval Based on Property Cash Flow

Most real estate investors reach challenges when attempting to expand their real estate portfolio, and are looking to finance those new investments. The general investment property loansassumption is that their only option is to get a hard money loan or buy the new home cash.

That is not true in this market. With a portfolio loan, you can have an unlimited number of financed properties. What’s more is that these types of scenarios are approved based on property cash flow, not borrower income circumstances.

That would make sense wouldn’t it?

To approve the property based on cash flow? Since the rental income will be paying for the mortgage/taxes/insurance/association dues, the deal is evaluated based on fair market rent. These are done on purchase, refinance, and cash out refinance loans.

These types of rental property loans are phenomenal for seasoned investors who are looking to grow their real estate portfolio. [full article here…]

Unique Income Circumstances

We often see borrowers that are financially stable, have great credit, solid assets, but don’t qualify for a mortgage due to a simple technicality regarding their income situation. This is another great opportunity to explore the possibility of getting a portfolio loan.

Keep in mind, portfolio loans are not necessarily “stated income” loans, where the borrower tells the lender how much they make, and all is well (like the old days before the housing meltdown). Portfolio loans are still full documentation loans, but are looked at from a common sense standpoint.portfolio loan unique income

For example, let’s look at 1099 employee. These are folks that typically are considered “private contractors” and are given a 1099 at the end of the year to show earnings (instead of a W-2 like most employees). In this case, lenders need a 2 year history receiving that type of income. The reason for that is 1099 employees will sometimes have some unique write-offs on their tax returns that could possibly have an impact on what their actual net earnings are.

The problem with this is that many times 1099 employees are paid on a salary or set amount of income for a set amount of time. So basically, the borrower is guaranteed $X for the next X number of months, but can’t use that income to qualify because they don’t have a 2 year history of being a 1099 employee? Does that make sense? Heck no! Especially if that individual has worked in that same line of work in the past and has a degree in that field.

The reality is that these scenarios are fairly common, and people think they are stuck until they get a breath of fresh air (portfolio loan).

Bank Statement Loan | Self-Employed Borrowers

If you are a business owner and have significant write-offs that your CPA helps you take advantage of (most business owners), a bank statement loan program may be the best solution for you. With this type of portfolio loan, your approval is NOT based on your tax returns.

Your income is calculated based on 24 months bank statements (12 months on case by case basis). You can use personal or business bank statements depending on your scenario. You must be self-employed with the same business for at least 2 years. [full description here]

If you are looking for a second chance…

A portfolio loan could be the perfect fit for you. I talk with folks every single day, all over the country, who are seeking a common sense type of approach to mortgage approval. If I am unable to help, I usually can point them in the right direction at the very least.

You won’t be talking with my assistant, or some loan officer who is dabbling in mortgages. You’ll be talking with me directly. If I can help, awesome. It will be an honor. If I can’t help, I’ll do everything I can to connect you with the right lender so that you can accomplish your specific home ownership goals.

Main items to keep in mind when seeking a portfolio loan:

  1. Available on purchase or refinance.
  2. At least 10% down (no PMI).
  3. Down payment may be gifted if you have at least 5% of your own funds.
  4. Income and assets must be verifiable.
  5. Primary residence, second home, and investment property options available.

 

portfolio loans

I invite you to reach out to me.

Get your questions answered.

 

pre approved home loan

If you or your clients are in any type of unique scenario, please feel free to reach out to me directly for an opportunity to get approved for a portfolio loan. 248-894-2763


 

What is a portfolio loan?

Adam Lesner | NMLS 198818 | Troy, Michigan

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona, California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.

So Your EX Destroyed Your Credit…

Portfolio Loan

Post-Divorce Mortgage

I have seen it countless times. An otherwise “A grade” borrower is left with no mortgage options because their ex-spouse was extremely irresponsible with their finances while going through divorce. Resulting many times in no other option than having to file for bankruptcy, and even foreclose on their home.

For these types of situations there is hope!

FHA, VA, and conventional guidelines are set in stone. As brutal as it sounds, they don’t really care about the sob story. If you had a nasty divorce which resulted in a bankruptcy, short-sale, or foreclosure you’re pretty much between a rock and a hard place if you have any desire to be a homeowner in the next couple years.

So what can you do? You have been a homeowner since you graduated college 15 years ago. Are you really going to be forced to live with family, or rent? NO. Believe it or not, there are lenders out there that take a common sense approach to mortgage loans for people with bad creditlending. Lenders that will look at your situation from a common sense standpoint, and make every effort to understand exactly what led to the circumstances that you’re in. Lenders that will take into consideration that you fell on hard times, but are now back on your feet. These are the lenders that offer in-house portfolio lending. Lending designed to bring common sense back into the home financing world. Where you don’t have to fit inside the little black and white boxes of the strict government guidelines.

Imagine that?  Being treated like a human being instead of a statistic. What a refreshing concept?

So where do you start? The best thing to do is seek out a small-to-mid-size lender, bank, or credit union which offers portfolio loan financing. Find out what their requirements are for these unique loans. Find out what you can do to prepare as best you can. There are still going to be requirements to meet because they want to make sure you ARE back on your feet, and confirm that you do have the ability to repay the loan.

thumb-422147_640Some things to prepare yourself for when getting a portfolio loan:

  1. You’ll probably be required to put at least 10% down.
  2. Points may be required to cover the level of risk they are taking.
  3. Typically there is no mortgage insurance requirement 🙂
  4. You need to have a verifiable income.

 

Other situations when a portfolio loan may be your best option: unique property you’re looking to buy, self-employed less than two years, bad credit because of an isolated incident like a work injury, etc.



You thought you didn’t have a chance in the world to buy a home, but don’t give up. If you’re back on your feet, and you have at least 10% for down payment, home-ownership may be more within reach than you thought.

portfolio mortgage lenders

 

I invite you to reach out to me directly to see if a portfolio loan is the right fit for you.

At the very least I should be able to point you in the right direction.

 

real estate investment loans

Repair your credit today with Lexington Law

Self-Employed Less Than Two Years Mortgage Solution

Update: 3/6/17

No conforming product currently allows for 1 year tax returns as self-employed if self-employed less than 2 years. On a vary rare basis, some lenders will allow for less than 2 years self-employment. 

It is unclear currently on if 2 year tax returns averaged will be acceptable. 

I will keep this updated as new information comes in. The updated guideline is below. -Adam Lesner

For self-employed Borrowers, the number of years of required tax returns will be based on the number of years the business has been in existence:

  • For businesses operating for five or more (5+) years, one (1) year of business and personal returns will be required.
  • For businesses operating for less than five (5) years, two (2) years of business and personal returns will be required.
The solution may be a portfolio loan if you have extensive experience in same line of work prior to going self-employed and have at least 1 full year as self-employed.

Is it possible to buy a home if you are a “private contractor” or have been self-employed less than 2 years?

The answer is yes it’s possible, but each situation is unique.

Before we dive into how it’s possible, let’s get on the same page of what the root issue is. Being self-employed less than two years makes it difficult for the lender to make a determination of what your actual income is because there is limited history. Since there is limited history, it’s just as difficult to determine the likelihood of that income to continue in the future.

“Okay, but Adam, I can show you my bank statements with deposits of $10,000/week.”

Right, I get it. You make good money. You have cash money sitting in your bank as a result of your business being profitable. The problem: the lender can’t see how much you had to spend in order to get that kind of return unless you have a profit and loss statement prepared, and show proof of how you’re reporting those expenses to Uncle Sam.  So many, maybe even 80% of the business owners that provide tax returns for me to look at, claim substantial write-offs which offset their income in a way that nearly puts them at a break-even point. The solution: get a bank statement mortgage. There are a few different options when it comes to using bank statements as proof of income. Ask me if I can help with your unique situation by using you bank statements as proof of income.

The good news…

person-110303_1280is that there are lenders out there that will take a look at self-employed borrowers, or even 1099 private contractors from a common sense standpoint. Standard loans backed by Fannie Mae, Freddie Mac, FHA, etc. are not going to be the way to go if you’re self-employed less than two years. The guidelines are strict, and the opportunity to be looked at from a common sense standpoint are extremely limited. Your best bet is to find a lender that offers portfolio financing. This is where they lend their own money, and keep your loan in-house. Keeping your loan in-house means it will not be sold on the secondary market, which means it will not have to meet the strict guidelines of conventional and FHA mortgages. You’ll find portfolio lending with the smaller lenders or credit unions in your local areas. They are the companies that are organically grown within the community, and they tend to have more of an attachment to the area.

2 examples that might make sense to get approved for home financing for less than two years self-employed borrowers:

  1. You have been an IT professional for 5 years. Last year you went from being a W-2 employee to a 1099 employee (private contractor). You’re still working for the same company, but now you are on an annual contract instead of an annual salary. You provide a profit and loss statement showing your income is consistent with how you claimed your tax returns last year. Bam! It makes sense right? Well, most lenders won’t talk to you unless you have 2 years tax returns.
  2. You have been in business for yourself for 5 years running a printer supply store. Last year you had to change the name of your company because of a shady partner that you had to break ties with. You still operate on the same premises. The only thing that changed is the name of your company. Some loan officers will say “Yeah, let’s do this,” just to find out a week before closing that their underwriter isn’t going to approve the loan because there is not a two year history of that business. But, come on, it’s common sense. You’re only going to be looked at from a common sense standpoint in a case like this if you’re working with a lender that offers portfolio loans.

An example that probably won’t fly:

  • You have been a plumber for 10 years. You decide to quit your job and open a pizza parlor. You decide 6 months into it that you want to buy your dream home on the lake. Sorry, it’s going to be impossible to make a determination of what your income is in that short period of time.

How do tax returns impact your mortgage approval? Here is my latest post on that.

 

 


Self-Employed Less Than 2 Years and Buying a House | (Update in video description below)


When seeking a portfolio loan, keep these things in mind…check-37583_1280

These are loans that are funded in-house with your particular lender, taking risks the vast majority of lenders aren’t willing to take. You may be required to put 10% down or more. You may only be able to do this type of loan on a primary residence. Your rate might not be the same as what conventional rates are. You may get a chance to be told “Yup, you’re approved”, when everyone else is saying “no”!

I invite you to reach out to me.

portfolio mortgage lendersGet your questions answered. You will not be talking with an intern, or someone who just got their mortgage license. You’ll be talking with me directly.

We can’t help everyone, but we do make every effort to take a common sense approach to get self-employed borrowers approved if it makes sense.

pre approved home loan

 

Finally! Mortgage Loans for Bad Credit

Applying for mortgage loans for bad credit can be uncomfortable to say the least. I can’t tell you how many times I’ve heard the same story. A great family, with strong stability fell on hard times. They had to let their house go because of a serious injury, downsizing of a company, or loss of a loved one. In many cases those folks get back on their feet within 6 months to a year, and would like to buy a home again. However, with the lending guidelines in today’s world, that can be quite a challenge.

The good news is there are lenders out there that will treat you like a human being. Mortgage loans for bad credit do exist, and I’ll tell you how to find them WITHOUT having to jump through a million hoops.

How bad can your credit be?

Well, it depends…

Credit scores and time since the blemish really aren’t the main factors. The main factor is “why”. What’s the story behind the credit problem? Were you blatantly irresponsible? Or did you have a rough patch?

Let’s say you had a foreclosure a year ago because your company outsourced your job after they cut your pay 50% a year before they let you go. You were in a position that you genuinely couldn’t afford to make your payment and had no choice but to foreclose. As long as you can some how prove the course of those events taking place, and show a previous history of being financially responsible, you definitely have a chance to get approved.

Now, if you “gave your house back to the bank” because you noticed home values were declining, that’s another story. It has to make sense. There needs to be proof that there was a legitimate reason for the cause of the credit issue.

Who can offer mortgage loans for bad credit?

The vast majority of lenders, especially big banks, and mega-originators, only write “A-paper”. They are (for the most part) extremely conservative with what they will approve, and who they will approve. You want to look for a small to mid-size local company. Maybe a credit union or a company who has some sort of partnership with a credit union. Small local banks are good too.

Why? These types of companies are typically privately held. They are more likely to be committed to building and strengthening relationships in the community, and bend over backwards to meet the needs of their clients. I’m not suggesting that there aren’t awesome people that work at BIG companies. All I am saying is that their hands are tied many times because of the company they represent.

There is something special about reaching out to someone and telling them you can help when no one else would even give them a second look because of their bad credit. Really giving folks a second chance without making them wait 2-7 years to get back on their feet.

What can you expect with these bad credit in-house loans?

  • Primary residence only.
  • Usually 10% down will be required. Gift okay.
  • The interest rates may be higher than typical loans.
  • No monthly mortgage insurance even if you put less than 20% down.
  • Paying points may be required.
  • Okay on purchase or refinance. Even cash-out refinance is okay in some cases!

Getting mortgage loans for bad credit isn’t for everyone. Typically it’s a short term fix for people with unique situations, but know that home-ownership is right for them. Once they’re back on their feet within a couple years, it would most likely make sense to refinance into the loan that meets the needs of their updated circumstances. Did you know this type of opportunity was available right now?

portfolio loansI invite you to reach out to me.

Get your questions answered.

You won’t be talking to some newbie or intern, you’ll be talking with Adam Lesner directly. We don’t get everyone approved, but we do our best to find the right loan if it makes sense.

pre approved home loan

Check out video below:

Adam Lesner NMLS 198818 | Mackinac Savings Bank NMLS 401686 | Main offices in Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona, California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Ohio, Oregon, Tennessee, Virginia, Wisconsin.