Our home is up for auction February 25, 2008. We have been offered a loan through a private investor. This loan consists of 1% down which goes to prepaid interest, a $35,000 fee which is part of the loan, then the loan is 4% interest 30 year fixed. We do not know if this investor is going to come through or not. We are a family of ten and will be homeless if we lose our home at auction, or sell at a cut throat rate. Our home is worth around $335,000 as is. We need to do work on it and believe that it will then be worth $390,000 to $410,000. Our credit is not good. We owe about $170,000 between first, second, and judgement. We have about $30,000 in other debt we want to pay off. We have struggled due to bad choices and also just different life hardships. We want to fix our credit and save our home. We believe that there is an investor out there that can help us. Most will laugh and say it is not possible. Are you the one or do you know an investor willing to take a similar risk on our family?
I’m sorry you are going through such difficulties. However, I do have to be realistic with you. As heartless as this sounds, any investor would want to know “What’s in it for me?” They will want to make money on the deal by getting your property at an extreme discount or lending to you at a profitable rate.
If you can’t get convetional financing because of bad credit, consider asking the investor to finance you on a cheaper home. The investor will get a good property deal and if you can pay it, a great margin on the money he is lending you. For example, find another property that is a super deal, even if it is a smaller or more run-down property. It’s a good temporary alternative while you have the interest of this investor.
The other advantage to “downgrading” to a smaller or cheaper property is that you may be able to sell or re-fi back to your name when the market corrects in your area. Real estate always rebounds, so find a win-win for you and the investor.
My question is why are you hesitating to work with the private investor you have now… Here’s how I see it…
1st, 2nd and judgement = $170,000
Debt = $30K
Fee = $35,000
TOTAL NEEDED = $235,000
1% down = $2,350.00
Private Investor offers:
Mortgage @4% fixed, principal payment of $1121.93 x 360 months = $403,894.80
Conventional Bad-Credit Mortgage of (a minimum) @6.75%, principal payment of $1524,21 x 360 months = $548,715.60
SAVING you $144,820.80 in interest between a 4% loan and a 6.75% loan. If you can swing the payments, this is a no-brainer, even considering the $35,000 fee. If the details are on the up-and-up (i.e. - in writing), and you cannot get alternative financing, I would take the deal, and try to get him to wrap the $30K debt into the mortgage, and make prepayments on the mortgage (be sure there is no prepayment penalty) with the money you would have had to use to make the debt payments (which I am sure are at a higher interest rate than 4%).
This will get all of your debt under one very low interest loan (4%), which you can pay down quicker considering you will have no debt except for the mortgage.
Now, assuming all of this happens, DO NOT make the mistake of going back into debt. Buy something ONLY if you have the cash to pay for it. If you charge it, write the check to pay for it when you get home so you will not start stock-piling debt again.
Best of luck…