How Mortgage Loans With Bad Credit Does Not Exclude 100% Financing

There is no doubt that applying for mortgage loans with bad credit means the best deals are out of reach. Mortgage providers and traditional lenders are usually very cautious over lending to bad credit borrowers, but some of them are open to accepting the risks involved – such as sub-prime lenders.

Over all, a sub-prime lender does not offer the most cost-effective mortgage options, but they do at least offer a very good chance of getting approval. And in the end, securing the funding to buy a new home is the point. What is more, they even offer 100% financing, or mortgage approval with no down payment.

Even for applicants with excellent credit records, there is a huge attraction to the idea of not having to make a down payment. Known as a zero-down mortgage, it effectively means no lump sum needs to be paid to seal the deal, savings tens of thousands of dollars in the short-term.

Zero-Down Mortgages: The options

Like everything else in the lending world, there is more than one option that those seeking a mortgage loan with bad credit should consider. In fact, there are 2 types of mortgages that require no down payment: a 100% financing loan, and an 80/20 financing loan.

The difference is evident from their titles. 100% financing means that the mortgage taken out covers everything in the purchase of the property. As a zero-down mortgage, this is the simplest to handle, but the interest rate charged (if high) applies to the full value of the home.

In contrast, the 80/20 means that the mortgage covers 80% of the purchase, while a second loan covers the remaining 20%. The applicant can get mortgage approval with no down payment, but effectively a second debt.

Terms To Consider

But what are the terms that make getting this kind of mortgage loan with bad credit a viable one? On the face of it, this option is very expensive, with sub-prime lenders charging above the average interest rates. Thus, the cost of the mortgage is very high.

However, the term of the mortgage is usually longer, thereby ensuring that the monthly payments are kept as low as possible. This means that even for a 100% mortgage, approval with no down payment is completely affordable.

Also, since with a zero-down mortgage the full amount of the purchase price is paid in one go, there is no need for any private mortgage insurance either. This helps to reduce the overall cost of the purchase too.

Qualifying For Zero-Down

The requirements to qualify for these mortgages can differ depending on the mortgage provider, but there are some consistent criteria. For example, those applying for mortgage loans with bad credit must have a score of around 600 to have a strong chance of approval.

Also, sub-prime lenders insist bankruptcies or foreclosures cannot be more recent than 12 month. This is in sharp contrast to other lenders, who are unwilling to grant mortgage approval with no down payment when bankruptcies are within 4 years of the application date.

Applicants should also be able to produce proof of at least 6 months worth of repayments in reserve, though some sub-prime lenders may ask to see 12 months in reserve before granting the zero-down mortgage.

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Franchise Financing Options

Opening a franchise can be a great opportunity. Franchises reduce some of the risk of starting up your own business. However, opening a franchise requires significant money. Not only must a franchisee pay for the regular start up costs, but the franchisee must also pay a franchise fee (which may be $10,000 to $100,000 or more). The average person likely does not have all the necessary money in cash, so the franchisee must find franchise financing. There are many options available for franchise financing.

Franchisor Financing:
Some franchises will offer financing directly to the franchisee. This type of franchise financing could be one of two ways. The first is that the franchisor will offer a loan directly to the franchisee. The second way is that the franchisor can help the franchisee obtain franchise financing with a third party.

Bank Financing:
A franchisee also has the option of seeking out franchise financing on their own. A franchisee can go to a bank and try to take out a loan. A franchisee can go to the bank that they currently have a checking or savings account. However, a franchisee will be best served by seeking out those banks that offer franchise financing and deal with small businesses.

A franchisee must be prepared when seeking out franchise financing from a bank. Whether or not the franchisee gets the loan is dependent on the franchisees’ credit profile. A franchisee may also need to show a business plan and other financial statements to the bank.

U.S. Small Business Administration:
The U.S. Small Business Administration is an agency of the United States government that helps citizens interested in starting up small businesses. Franchises fall within the definition of small businesses, and thus franchisees can seek out help from the Small Business Administration in obtaining franchise financing. The Small Business Administration has programs where the government will guarantee the small business loan, which may help the franchisee qualify for a lower interest rate on the loan.

Friends and Family:
Another place where a franchisee can seek franchise financing is friends and family. If the franchisee has a rich uncle, then he may be in luck. The franchisee may be able to obtain financing from one family member or many. If the franchisee desires to make the franchise financing loan more formal, one option is to set up the loan through virgin money us dot com.

One thing to remember is that nothing can sour a relationship quicker than borrowing money and not paying it back, so if the franchisee chooses this option, do it cautiously.

Pay it Back:
Franchise financing means that eventually the franchisee will have to pay back the money, the financing is a loan and not a grant. The franchisee must make sure that they will be able to pay back the loan without adversely affecting the franchise or their personal life.

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