In the last 15 years, bankruptcies are at an all-time high. Foreclosures seem to litter just about every neighborhood, and the financial setbacks that most Americans have endured are immeasurable. The initial reaction is to believe that one’s days of owning their own home are over once the bankruptcy paperwork has been filed, but bad credit loans for homes or investment properties are issued every day. The key is understanding that these loans are not coming from banks, but instead, from hard money lenders. While the standard waiting period associated with qualifying for another loan, post-bankruptcy, can last years, many of these lending groups will approve your application in as little as 6 months! This means that you can endure a bankruptcy and foreclosure, but be back on the market shopping for a home in less than a year!
The Down Payment
When using one of the bad credit home mortgage lenders, remember that a 25-28% down payment is necessary. This isn’t a “rule”, per se, but it definitely a common practice in the hard money lending industry. Because of the risk associated with issuing home loans for bad credit applications, the lenders need to circumvent their own investment risk by ensuring that the loan is 60-65% of the property’s value.
Securing the Loan
The loan is secured by the buyer putting up the property as collateral against it. This is nothing new as banks use the same practice, but it still worth noting. While issuing bad credit loans for homes is something that stems from an interest in boosting the housing market and helping those that need a hand, there also needs to be a guarantee that the lender isn’t going to lose their capital. Before applying, it’s important to understand what’s expected on behalf of the borrower, and how the lender will work to protect their investment.
Bad credit home mortgage lenders have grown exponentially in recent years. The lack of lending on behalf of banks, when coupled with the incredible prices seen on homes across the country, has left a massive void in the market. By pairing investors with potential homeowners, private hard money lending firms are bridging the gap that has been preventing new homeowners from entering the fold.
As we pointed out before, capital can still grow in the modern economic landscape. Investors are searching for new ways to generate a return on their nest-egg, which is why more and more bad credit loans for homes are being issued. While there are drawbacks to borrowing from these privately funded organizations, the benefits can be incredible. Recovering from a bankruptcy or foreclosure is imperative, as the economy will eventually turn around, and having a solid credit score can help future financing. These groups report to credit agencies, as well, meaning that acquiring one of these loans, and paying it as agreed, can be a significant boost to your credit rating, helping to lower interest rates on loans in the future!