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The Re-Emergence of Sub-Prime and Creative Loan Products

Are you having a tough time getting financing for your real estate purchase?

The recent economic meltdown caused havoc in the real estate market. Sudden drop in home prices was the fundamental reason for borrowers foreclosing, short selling and modifying their loans. Most people were left with no option but to walk away. As a result, regulations came in to ensure that foul practices used by some financial institutions would never be used again. Tons of professionals and institutions were sent to trial for not acting with fiduciary responsibility. The aftermath resulted in the closures and buy-outs of many mortgage companies. After the dust settled, everyday borrowers were most affected because they had to foreclose on homes, file bankruptcies or take major hits on their credit.

However, all that is behind us now. We have stepped out of recovery mode and are now in a major growth mode, especially in coastal and major metropolitan areas. There is an influx of jobs, with the tech industry leading the way. And as a result we are seeing a lot of capital flowing through the Real Estate industry. Liquidity of cash in the market is the direct factor for the resurfacing of Subprime and as a result, there is hope for people who are looking for creative financing!

I have done my best to break down some of the creative mortgage loan products that are available in the market today. Please bear in mind that most of these loans require a minimum of 20% down and the interest rates are not as competitive as your normal conforming loans. But you won’t be disappointed as these loans are putting people in homes in situations where they are needed.

Out of the box Loan Solutions:

Owner Occupied (to live in)

-You can get financing if you had a foreclosure, Bankruptcies or a loan modification 2 years ago.

Income documentation: Self Employed borrowers are allowed 12-month bank statements or 1-year Tax Returns

Property types: SFR, 2-4 unit, non warrantable condos covered (look at foot notes for definition)

Prepayment Penalty: None

Loan terms: 5 or 7 year fixed loans

The interest rate on this product varies from 5.50%- 7%, which is still a great range to get a home if you are not able to obtain conventional financing. And when you are ready to refinance you are not obligated to pay a prepayment penalty.

Non-Owner Occupied (investment or Rental Property)

-You can get financing if you had a foreclosure, Bankruptcy or a loan modification 2 years ago

Income documentation:  1040s or income documentation not required

Property types: SFR, 2-4 unit, condo covered

Loan Terms: 3, 5 or 7 year adjustable loans

The interest rate on this product varies from 7%-9%. This is not your typical product to keep forever, an exit strategy is needed. Most non-owner-occupied loans require 25% down. And the financing lender usually puts a first lien on the home until you refinance out of it. But this is a great product for investors and people who want to buy and flip a property.

Remember, whatever loan product you chose, make sure to do your homework on it. My job is to give you professional and sound advise but you should also talk to people in your network that are familiar with these programs. When it comes to consumer financing (owner occupied) you are covered with the lending laws. Although these laws may have caused you a lot of pain they were put in place to stop financial intuitions from exploiting you. So don’t worry too much! Just be responsible and do your part. The above mentioned programs are only a few from a list of lots more. There are solutions for foreign nationals too, folks that have just got the country and don’t have tax returns and a permanent status. Stay tuned for our write up on Foreign Nations!

Great luck on your ventures! Until next time….


Non Warrantable Condo: a condo in an apartment building that has 51% or more of the units that are non-owner occupied, 26% or more of the building is commercial space, a single entity or company owns 11% or more of the building, the HOA is in litigation.

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