The Basics Behind Last Resort Lenders
Simply put, a last resort lender is another term for a hard money lender. Usually, a last resort lender offers private loans to individuals who cannot qualify for a mortgage, but who have the income to make the payments and have sufficient equity in an existing home to use as collateral on the loan. These lenders charge higher interest rates than traditional banks, typically in the 10-15% range. Before you consider this option, you will want to explore the pros and cons to these loans.
Explore The Pros And Cons Of Last Resort Loans
The Pros: Last resort lenders provide hard money (also known as bad credit loans) to individuals who have had credit problems in the past, but need a mortgage for a new home purchase, to refinance their existing loan or to access their home equity. So the overall "pro" is that you are getting a mortgage where otherwise you would not be able to find another source.
A second pro is that because the loans are private, there are no adverse affects on your credit score. This is important because if you work to get your FICO to a fairly solid score, you can then refinance in 2 or 3 years out of the hard money and into a traditional loan.
The Cons: You will need at least 25% equity in a property or other hard asset to use as collateral in order to qualify for these loans. Your real estate collateral allows a private lender to feel less risk about making a loan with your low fico score and/or bad credit. Without this equity, hard money lenders will not take on this debt because of the risk that the borrower will default on the loan.
In additional, bad credit home loans carry a higher interest rate than a traditional home mortgage. The higher interest rate reflects the increased risk that the lender of last resort has to assume.
At the end of the day, these hard money loans are god options for anyone who has income and equity to secure a loan ,but not the credit score to convince a bank to give them a loan. In states such of California where there are many hard money lenders, hard money loans can be found at relatively decent loan rates. For bad credit home loans outside of California, other rates apply.