Unusual Loan Situation

Recently, I had a loan request from a borrower who lived in an owner occupied mobile home on land. He also owned a vacant lot worth $70,000. He wanted to get a construction/ perm loan to build a new home on the vacant lot.

However, through a bad divorce situation, the borrower’s credit would not allow for any of construction money, even though the borrower owned the vacant land free and clear.

After examining the loan scenario, it was decided that the borrower would need a year or two to clean up his credit and pay off outstanding collections and derogatory information by paying or settling the outstanding balances. It was going to take at least $15,000 in cash to settle up on the credit issues. The current lending climate for mobile home financing had for the moment dried up. So the situation played it self out where the only workable asset was the lot.  Now normally, a lender will not do a cash-out refinance on a lot loan, let alone with a borrower with challenged credit.   Here the situation was no help on the mobile home and land and few if any lenders that would have an interest in doing a cash-out on a lot loan.

The borrower expressed his strong interest in moving ahead. Using my contacts with 90+ lenders I was able to find a “Hard Equity” lender (Asset Value Based with No Credit Consideration and as a given, a higher rate) who will do a 50% Loan-to-Value on land. With the lot now worth $70,000 that means, if the lot appraises out and has no sink holes and such, then the deal is possible.  Again, the borrower has a strong interest in cleaning his credit up and putting the financial house in order so that a construction perm loan can then be feasible with a higher credit score. I don’t recommend this for anyone unless the need is extremely high. After chasing all the various loan programs, this “Hard Equity” loan proved to serve the customer’s immediate needs.

Bottom line, the borrower is going to clean up his credit, raise his credit scores and position himself to get a Construction/Perm (One loan which constructs the home and then gets modified into a permanent loan) loan in two years or less. With an experienced loan officer on the case all options are checked to see if the deal can be done. The borrower had gone to several banks and credit unions and was turned down flat with no further effort. It’s just the nature of the banking business; if the scenario doesn’t fit the cookie cutter requirements, they have to turn the borrower down with a Written Decline.

In my practice, when working with borrower challenges, I check all the possible alternatives and may just end up working with the borrower for a few months to coach the borrower in cleaning up his credit so we can do what he wants to do.

Thanks and kind regards,

Paul B.