Is there any way I could get a loan or mortgage?

September 17, 2009 12:47 PM

Can I get a loan or mortgage in any way? We currently live in a building that we more or less own. Technically, we own an LLC, and the LLC owns the building (and that's all it does), so home equity is probably out. We would like to buy a new house about half the value of this one, preferably without selling. However, that would require a loan, and we have lousy credit.

Details: Our current building is completely paid off. We are self-employed and our income is not impressive, but our expenses are low. I'm sure we could afford mortgage/loan payments, and we'd be happy to sell our current building to pay off the loan if for some reason we weren't able to come up with the money.

Our credit is pretty much non-existent because we don't have credit cards, house or car payments. We can't get credit cards at this point, as far as I can tell. We do have utility payments that we pay, but not always incredibly punctually.

Family members might possibly be willing to cosign. Would that be enough to do it, if they have good credit?

I'm not particularly frightened of high interest rates, I just want to know if there's any chance this could happen. If so, how can I tell reputable loaners from crazy internet scams, considering that we probably won't be dealing with a major bank (or is this an incorrect assumption?).

posted by lgyre to work & money (8 answers total)

Are there any other members of the LLC? Seems that if the LLC were willing, the equity in the building could be pledged as collateral for a loan to finance the purchase of the new house. But that would make the LLC the owner of the new house, under most circumstances that lenders would be comfortable with.

My sense is that big lenders are still spooked by anything that smacks of "creative financing" and that your best bet is talking to a small credit union with a physical presence in the are that your collateral and target property is in.
posted by QuantumMeruit at 1:14 PM on September 17, 2009

Have you tried dealing with a major bank yet? You can just show up a full service branch of any national bank and sit down with a loan rep. Tell them what you just told us here and see if they have any acceptable packages for you. If not, the rep should have a few pointers and inside baseball info to offer you.
posted by Burhanistan at 1:19 PM on September 17, 2009

No, there are no other members of the LLC. We considered trying to get a loan in that way, but apparently that would also involve a credit check of us, as the business owners, and we would probably fail that. Also, in this type of loan no one could cosign unless they were also partial owners of the collateral, so a very long shot possible method could involve temporarily adding other trusted people with good credit as members of the LLC for the period of the application and/or loan. However that has so many possible complications we're trying to think of it as a very last ditch strategy.

Credit unions might be worth checking out, though.
posted by lgyre at 1:23 PM on September 17, 2009

I'm sure I'll get a lot of heat for this post, but as someone who used to work in the financial services industry, I'd like to play devil's advocate for a moment here:

There is a question that should be asked before "Can I get a loan / mortgage?"

Maybe you've already asked it, but based on what I'm reading, I'm not so sure that you have. That question is: "Should I buy a home?"

It seems that people today feel that are "supposed to" own a home. This is not the case. Whether you're rich or poor, owning a home is not always a sound economic (or lifestyle, for that matter) decision. Often times, renting is the economically better option. This is true significantly more often than you'd think.

One of the biggest problems our economy faces today is a direct result of people being convinced that everybody needs to own a home. This is why we're facing a potential economic collapse.

If you have lousy credit, odds are you should probably re-evaluate your desire to own a home, especially in risky times like these, and even moreso when you are a small business owner with income that is "not impressive."

Please don't take this as a sign of disrespect or a slight - it is the exact opposite. Nobody is "good enough" or "not good enough" to own a home. It's a business decision.
posted by twiggy at 3:08 PM on September 17, 2009 [1 favorite]

You might have good luck talking to a loan officer at a local, community bank, and seeing what she says.
posted by leahwrenn at 3:10 PM on September 17, 2009

I assume there's some reason you (as your LLC) can't sign over the building to you (as yourselves), or that doing so doesn't make financial sense?
posted by ROU_Xenophobe at 3:11 PM on September 17, 2009

apparently that would also involve a credit check of us, as the business owners, and we would probably fail that.

What makes you think you would "fail" the credit check? As far as I can tell, the only reason you think you have "lousy" credit is because you don't have any credit cards and you occasionally pay your utility bills a bit after the deadline on occasion. Other than that, you have an income to pay off a long term loan and collateral in the form of a building. You don't mention any bankruptcies in your past or any debts written off on credit cards that you don't have anyway. At worst, you just have very little credit history.

I think your best bet is to talk to a bank or credit union rather than just assuming that you can't get a loan.
posted by deanc at 3:19 PM on September 17, 2009

Not to be negative either, but as a banker, I have to echo twiggy's comment...are you really in financial shape to buy a home? I see credit reports all day long, and it's stunning that, just for example, people with thousands of dollars in collections want to put even more of a financial burden on themselves with a house.

But that's not your issue.

In this lending environment, no large institution is going to lend you money unless you have a credit history and a score no lower than 580 (although 620 is more of an acceptable minimum). Even if you had a cosigner, you still need to pass the credit check. Most loans that originate from the Big 4 (Bank of America, Chase, Citi, and Wells Fargo)...as well as the companies that write loans then sell them to the Big 4...have to follow guidelines put in place by Fannie Mae and Freddie Mac (or FHA), and credit's a gigantic factor in the puzzle.

Your best bet is a local credit union that holds its own paper/notes and doesn't have to follow Fannie/Freddie guidelines. Good luck.
posted by st starseed at 8:28 PM on September 17, 2009