Mortgage and Portfolio Loan Guide

Cash Out Refinance with Bad Credit

Tapping into your home’s equity to do a cash out refinance with bad credit may be a great option if you’re looking to consolidate high interest debt or make improvements to your home.

Here you’ll find everything you need to know about how to get approved for such a loan and what to expect when refinancing your home with a cash out or debt consolidation mortgage.

What is a cash out refinance?

When you own a home, typical market conditions provide natural appreciation of your property. This means over time the value of your home increases. As the value increases, you gain more equity in your home.

With a cash out refinance, you can tap into that equity to accomplish your financial or home improvement goals. When you refinance you pay off the existing mortgage loan and get extra cash out to cover other debt you’d like to pay off or make home improvements.

Why would a homeowner do a cash out refinance?

A cash out refinance is done for many reasons. Here are some of the most common scenarios:

  • Consolidate high interest credit card debt
  • Make improvements to the home
  • Pay for children’s college
  • Pay off medical bills or other collections
  • Increase cash reserves for unexpected emergency

Cash out refinancing is available for perfect, good, fair, and bad credit. The main factors that are considered are equity (amount borrowed vs. home value) and income (ability to repay).

A cash out refinance can be done on a primary residence, second home (vacation home), and investment property. The max loan to value ratio will depend on property type, occupancy, and credit score.

Example: if you have perfect credit, and it’s a 2 unit investment property, you may be limited to 70% loan to value. If it’s a primary residence and you have 620 credit score you may be limited to 85% loan to value.

Cash out refinance loans are available for credit as low as 520. Must meet equity and income requirements.

What are the benefits of doing a cash out refinance on your home?

When you consolidate your high interest credit card debt with a cash out refinance there are several incredible things that happen. Paying down your credit cards typically results in higher credit scores.

The credit bureaus (experian, equifax, transunion) score you based on the amount available in comparison to how much you have used. The lower amount you have used compared to the amount of credit available to you will only help your scores in a positive way.debt consolidation mortgage

The interest rates on credit card debt are typically much higher than mortgage rates. AND the interest on credit card debt is NOT tax deductible. The interest you pay on your mortgage IS tax-deductible. Many home owners’ largest tax deduction is their mortgage interest.

By rolling your credit card debt into your mortgage you not only decrease you overall monthly payments, but you also set yourself up for success in terms of tax deductions in many cases.

Take a look at your most recent credit card statement. How much of your payment went toward principal? Not much right?

The tricky thing about credit cards is the minimum payment is manageable, but the minimum payment never gets you anywhere in terms of paying down the principal balance.

By consolidating it into the mortgage, you create a manageable plan to pay off your debt.

Cash out refinance to complete home improvements

Using the equity in your home to improve your home will likely increase the fair market value of your home. Keep in mind, it’s not a dollar for dollar trade-off. Just because you put $20K into new floors and appliances, that doesn’t necessarily increase the value of your home by $20K.refinance mortgage bad credit

Every market is different and some upgrades provide more value increase than others.

The biggest benefit of using your home’s equity to make improvements is it allows you to do the things that you have always intended on doing, but have been unable to save for because life gets in the way.

Improvements like:

  • A new deck/porch
  • Replacing carpet
  • New appliances
  • Roof
  • Improved landscaping
  • and more

What if I have bad credit, can I still do a cash out refinance?

There are several different mortgage options available when looking at getting approved for a cash out refinance. For good credit a conventional loan will probably be the best route to take. For fair to poor credit, an FHA loan will probably be your best route.

If you are a veteran of the US armed forces, and eligible for VA financing, you may be able to do a cash out refinance up to 90% of your home value even if you have credit below 580.

If you do not meet FHA or VA guidelines because you have had a more recent bankruptcy, foreclosure, or short-sale; a portfolio loan will likely be your best option.

Portfolio loans are for scenarios that are more unique and require a “common sense” approval approach. Portfolio loans are less strict than traditional financing, and are intended to be a short-term fix for short-term circumstances. Once you meet traditional lending guidelines you’ll want to refinance out of the portfolio loan.

More on portfolio loans here.

  • Low Credit scores okay
  • Primary residence, vacation home, and investment property
  • Single family home, 2-4 unit, condominium, manufactured homes allowed
  • Recent bankruptcy, foreclosure, short-sale considered

In Summary

There are many benefits to doing a cash out refinance. If you are not sure if you qualify for a cash out refinance whether you have good or bad credit please feel free to reach out.

I’ve been able to help many homeowner’s who have been told by other lenders that they don’t qualify.

I invite you to reach out. 

 

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Adam Lesner | NMLS 198818

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.

E002: Portfolio Loans | How They Save Deals

E002: Portfolio Loans | How They Save Deals

 
 
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Everything you need to know about getting a portfolio loan. Portfolio loans are a perfect opportunity for borrowers seeking home financing, but don’t fit within normal lending guidelines.

Here are some scenarios where a portfolio loan might be a good fit:

  • Recent credit issue – Bankruptcy, foreclosure, short sale, ect. – but now back on their feet
  • Unique property type – Non-warrantable condo, log cabin, etc.
  • Foreign National – Borrowers new to the US with no credit established
  • Investment property – Borrowers with a high number of investment properties that are already financed
  • Self-Employed – Borrowers with unique income due to being a business owner

Here is the original article: https://www.balanceprocess.com/what-is-a-portfolio-loan/

In the podcast I mentioned there is a way for borrowers to get approved for conventional financing without having 2 years self-employed income, here is the full video on that – https://youtu.be/t9fIAegHCr8

 

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.