Your guarantor Information
Not long ago a friend of mine came to me with a problem. He had just recently broken up with his girlfriend and was having financial difficulties. He was not looking for money, well not exactly. He and his ex-girlfriend had taken out a 100% mortgage to buy their house. Since they were no longer together it had been agreed that he would take over the house and the repayments that went with it. The problem was the mortgage was in both their names and based on both their incomes.
My friend went to get the mortgage changed into his name but he ran into a brick wall. The bank was not prepared to change the mortgage into his name because it was not prepared to take the risk on my friend. You see my friend also has a significant amount of personal debt, credit card debt, overdraft and some outstanding student loans.
So if it wasn’t bad enough that my friend’s relationship broken up it also looked like he would lose his house. Now what did he want from me? Did he come looking for advice on how to repay his debts and stabilise his financial situation? Was he looking for motivation in his struggle with his debts? No, nothing of the sort. My friend was running short on options. He was looking for someone to go guarantor on the mortgage. This would mean that the person who signed as a guarantor on the mortgage would be liable for the mortgage repayments in the event that my friend could not make the mortgage repayments.
To be honest I struggled for a long time with this situation. What was I to do? I was caught between wanting to help a friend in need and not wanting to put myself in a position that could damage my future. Imagine the scenario – I go guarantor on the mortgage for my friend, now my friend manages to make the mortgage payments for six months. Okay, so far so good – it seems to be working out ok and my position as a good friend is assured. Now imagine that my friend gets laid off or his debts continue to grow and are too much for him to handle? What then? The problem then is that if my friend can’t make the mortgage repayments then it falls to me to make them for him. I have debt burden myself so I sincerely doubt that I could take on someone else’s mortgage repayments on top of the loan repayments I have to make each month myself.
As you can see it was a tough position to be in. I was angry at my friend for putting me in this position and trying to leverage our friendship so that I could solve his problems. I wasn’t happy about it at all. I wasn’t happy about the way it was making me feel and the way it had infected our friendship. You see that’s the thing about debt in all its ugly forms. If you are in debt and are struggling to cope with your debts then every single aspect of your life is view through the glasses of debt. Every decision you make is clouded by debt. You are no longer prepared to take risks like finding and starting a new and better job.
It was situations like this that made me mad enough to start this website. I get really angry when I see people beaten down by debt. They sleep walk right into a mountain of debt and wake up one day wishing it was all a bad dream. Some get depressed and end up on anti-depressants. Couples with debt problems begin to argue over money. The debt has made them afraid of losing what material things they have. Little realising that if they continue they way they are they will end up in a vicious cycle of spending to maintain a certain lifestyle and using debt to fund it. I’ve heard stories of couples staying together (even though they hated each other) simply because they could not afford to take the negative equity hit on their house. You see debt like this is oppressive – its slavery.
Getting back to the situation I had with my friend. He was getting desperate as the bank was looking for a guarantor and his ex-girlfriend wanted her name off the mortgage fast. So I took the middle ground – I really wanted to help this guy, after all he’s a friend and what use would I be as a friend if I couldn’t help him in his hour of need. On the other hand I didn’t want to be pulled down by his mistake – if things got a little worse for him then I would be dragged into his black hole of debt. Not a place I wanted to go. So here is what I proposed to him and how I proposed it to him.
'I will go as guarantor on your mortgage for the period of six months if you satisfy the following criteria.
1.Get a reality check – I want you calculate exactly how much you owe and to whom you owe it. Then I want you to calculate exactly how much you are repaying in loans each month.
2.Calculate the absolute minimum that you can realistically live on each month – so cover the basics only, mortgage, food, transport and health insurance.
3.Take a look around your house and life and sell everything that you do not need – everything. Use this extra cash to pay down your credit card debt.
4.Once the first three steps are completed I want you to set aside an additional 5 percent of your net income each month and add this amount to the monthly repayments you make on your smallest loan. Once you have paid down this loan take the amount you were repaying on the loan along with the additional 5 percent and add it to the next smallest loan. Continue in this fashion.
5.Cut up all your credit cards and operate only with debit cards or cash.
6.Create a daily/weekly/monthly budget.'
I said to my friend that I would go guarantor for six months to give him breathing space but I wanted him to change his spending habits. After the six months were up I would extend it for another year if he met the criteria I outlined above.
To the casual observer the terms outlined above may seem a bit extreme – some may argue that I should have simply gone ahead and signed for the mortgage and to hell with the consequences. He’s a friend goddamn it! My argument is this – it was this kind of attitude that got us into debt in the first place and I’ll be damned if I’m going back there. I’ve had too many sleepless nights for me to go back to drowning in debt.
So this is how it turned out. My friend said I was being unreasonable. I explained in detail the reasons why I wanted him to meet the criteria. It was for his own good and I had his best interests at heart. He didn’t take too kindly to my offer of help on condition. He got very offended. He said I was treating him like a child and in certain respects he was right. I was trying to control his spending behaviour but only because I could see exactly where he was going to run into financial trouble.
I tried to remain calm and kept repeating my reasons but as I said before when people are in a lot of financial trouble and the bank is calling it is hard for them to be logical. It did become a bit ridiculous and my friend became very upset. He couldn’t see why I was being so stubborn. I pointed out that I felt it was unfair for him to use emotional blackmail on me just so I could click my fingers and his problems would be solved. Well at least solved until the next debt threat!
The conversation went on in this manner for a while before my friend just got up and left in anger. We didn’t speak for weeks. I sent him an email to see how he was getting on and he called me. We spoke for a while and he apologised for storming off. I asked about the mortgage and he told me that his brother in law had gone guarantor.
We pretty much left it at that. We have met up and spoken since but our friendship is damaged probably beyond repair.
Part of me wonders whether the right thing to do was nothing – to make up some wishy washy excuse as to why I couldn’t go guarantor and leave him to his own devices. I don’t know what would have happened but to be honest I think the best thing that could have happened to him was to lose his house – or come close enough to losing it that he changed his ways. Now before you start typing that email of bile to me let me explain. I wanted my friend to realise how dangerous debt can be if used without thinking. I could see from his “I want it all and I want it now” lifestyle that he was using getting in deeper and deeper in debt. I wanted to help him realise this but he did not want to listen and certainly not to me. Who was I to tell him he had a problem? If the sheriff had come calling to take his stuff away would that have been enough?
Probably not.
Mike Leonard
http://www.untildebtdouspart.com
Article author: Mike Leonard
A sicl is a commercial loan that does not require the full documentation that is required of a full document commercial loan. This type of commercial loan does not require the borrower to be able to prove that they can afford to make the loan payments from their own personal income but instead relies on the rents of the commercial property or the possible rents for the property.
Financial Benefits of a stated income commercial Loan include:
* Less Documentation The stated income commercial loan requires less documentation than a tradional commercial loan. In many cases since the loan is only underwritten to the properties cash flow or potential cash flow it is not necessary to provide as much documention.
* Easier approval process This commercial loan has an easier approval process because it does not have to be underwritten to both the property cash flow and a secondary repayment source such as the borrowers personal income.
secondary repayment source such as the borrowers personal income. Lower credit score requirements Some of these commercial loan programs also have reduced credit requirements.
Examples of a typical stated income commercial loan borrower include:
* A self employed small business owner that does not report all of their income on their tax returns who is looking to purchase a commercial property using a commercial loan.
* A real estate investor that does not show the amount of income necessary to qualify for a traditional commercial bank loan but the property has rental income that will support the debt payments.
Purpose
A stated income commercial loan is designed to help a borrower purchase real estate that they would otherwise be unable to purchase without a significant down payment. The commercial property does not have to be held in the name of the borrower or the operating company but can be held in the name of a holding company.
There are certain criteria for eligibility of this type of commercial loan.
The business that is occupying the property must be in business at least 2 years.
The guarantors credit score must be 600 or above.
The guarantor and operating company can not have a bankruptcy that is more recent than 3 years.
Structure
This commercial loan is only done on a first trust basis although it is possible to have a second trust provided by someone else. There are instances where combined total financing can be close to 100%. This depends on the type of commercial property, credit of the guarantor and other underwriting factors. Closing costs can be financed into the loan under most circumstances.
Easier than you think!
The stated income commercial loan is really meant to help people qualify for a loan without the hassle of providing the full documentation needed on a traditional bank loan.
Rates are slightly higher.
The interest rates are slightly higher for this type of commercial loan but the loans can be amortized up to 30 years.
The stated income commercial loan closes quickly in most cases.
It usually takes about 30 to 45 days from start to finish to close this commercial loan.
Borrowers do not have to use their house as collateral.
It is very rare that a stated income loan will need to use the borrowers home as collateral.
Borrowers with less than perfect credit can qualify.
Borrowers with credit scores as low as 600 can qualify for these programs. If your credit is within 40 points of this number it is possible that you may have some mistakes on your credit that we can help you fix while closing your loan. So even if your credit does not meet the 600 number today, it may when we are done with your loan. Get more information http://www.commercialmortgage.net
Article author: John Berardino
Definition A Multi-Family property eligible for commercial financing is defined as a structure having at lease 5 or more units with the residences seeking permanent habitation.
Key characteristics and considerations on a multi-family commercial property:
* there signed leases with terms of one year or greater.
* Are there various bedroom and bathroom combinations.
* Does the facility have a pool, clubhouse or tennis court
* Is the facility conveniently located to employment, shopping or attractions
* Is there a historically low vacancy
* Do the units have separate utilities
* Is there any deferred maintenance on the property
* Is the property professionally managed
Purpose
A commercial loan to purchase an owner occupied property can be used for almost any type of property that is not specifically investor related such as an apartment building. Additionally, farms, mining and other types of agricultural properties are not generally permitted under a traditional commercial loan.
Structure
Multi-family commercial loans are generally written with 5, 7, 10, 15, 20, 25 and 30 year terms with or without balloons. In general for a purchase a borrower will be expected to put down 20% plus closing costs.
Paperwork
For this type of commercial loan expect to provide full documentation including:
* Last 3 years property operating statement
* Year to date property operating statement
* Property rent roll
* Last 3 years federal tax returns of the borrower
* Personal financial statement(s)
* Digital photos of the subject property
Additionally credit will be pulled on the guarantor(s) as well as a D&B report on the business.
Fees
Commercial loans generally come with fees for things like appraisal, title work, environmental reports and points.
Credit requirement of our commercial loans:
We have commercial loan products that can help people with significantly impaired credit, these have higher commercial loan rates, and we also have commercial loan programs for people with great credit that deserve the best rates we have to offer. Get more information http://www.commercialmortgage.net
Article author: John Berardino
