This client is in a tough situation. he has a successful business which apparently is doing very well except that he has been hit with two calamities which nearly bankrupted him and took every last cent he had. He obviously did not pay all his creditors at the time and as a result has a bad credit rating.
He wants to buy a home, but the interest rates are too high for him to afford due to his bad credit rating. Someone with excellent credit and a decent down payment can obtain a mortgage around 3% interest, while someone who has bad credit may pay an interest rate of 14% or even higher. We chose 14% to illustrate how big a difference the interest rate makes in a mortgage.
At 3% the monthly payment is $565.58, while at 14% the monthly payment is twice this payment at $1132.50. Many people might find this shocking, however interest costs can add up quickly. Since this customer is obviously a knowledgeable business person, he understands the value of money and cash flow and how important it is to obtain a truly reasonable interest rate. For more information on the calculations see below.
He will be better off continuing to rent for awhile, saving up more cash for a larger down payment and setting up a fund within his company i.e. the restaurant for emergencies. With an emergency fund, he will not be impacted by any calamities that occur with the restaurant and he can continue to repair his credit rating. Taking this approach will save him a great deal of money in the long run and ensure that he can qualify for a much more reasonable interest rate saving him literally thousands of dollars over the life of his mortgage.
DEFAULT LOAN APPLICATION FOR BORROWER’S INFORMATION
Home/Mortgage Loan Amount :: $125,000
Home Loan Application and Processing Speed (when do you need the funds):: We are pretty flexible, we have to be with our low credit rating. We want to purchase a home, but so far have not been able to find a lender that will set us up with a mortgage at a decent interest rate.
Do you currently have a mortgage? ::no, we rent at the present time
Bank Name and Branch :: Hancock Bank, East Ocean Springs
What City/Town, State and County do you live in? :: Ocean Springs, Mississippi
Zip :: 39564
What is your employment field? :: I share ownership of a barbecue restaurant called The Shed just outside of Ocean Springs, MS
Employment Position :: Owner, operator, cook etc of The Shed
When are you paid? (monthly/weekly/biweekly):: bi-weekly
Your credit rating to be – excellent, fair, or bad? :: not so good, bad I guess
How did you find us? :: searching for reasonable interest rates online for people with bad credit
How are you paid? (direct deposit/paper check):: direct deposit to my personal checking account
Gross Amount Per Paycheck ::$1,500
Do you agree to have this information published online, without your PRIVATE information of course? :: Sure no problem, even mention our restaurant for advertising.
Extra information here please (some detail):: Hi, we have been looking for someone to pre-approve us for a mortgage for some time. The problem is that our credit rating is pretty bad and no one will approve us for a decent interest rate on a mortgage for $125,000. We want to buy a place and stop paying rent so that we can have a place we truly call our own.
We have tried numerous lenders both online as well as the traditional brick and mortar banks all to no avail. Some will approve us for a mortgage, however the terms and conditions along with the interest rates are just outrageous. We are going to continue looking but we are getting pretty discouraged with the entire process since we have not been able to find any lender willing to give us a reasonable rate in the past year.
Note to Lender :: In the mean time we are trying to improve our credit rating, however we have been told that it is going to take some time. We need to reestablish ourselves and have an excellent record of meeting all of our debt obligations before our credit rating is going to improve.
We own a restaurant which does very well. It is well known in the area and we have an excellent clientele. We even had reporters here to try our food and interview us on TV. It was pretty exciting and our business has increased several times over with all of the free publicity.
Our credit took a big hit twice when a hurricane took out our restaurant and then a second time when it burnt down. In both cases we had a lot of help from our neighbors and even our customers to rebuild, but it still took every last cent we had to get started again. We are located along a bayou in Mississippi and our customers love to camp here, to go on the bayou and of course to eat our great barbeque food. But we have no credit rating at this time and need help in buying a home.
|Category: Home Mortgage Loan||APR 3%||APR8%||APR 14%|
|Length of Term||25||25||35|
|Amount to be paid||$172,029.18||$250,411.15||$344,469.51|
|Total interest paid||$47,029.18||$125,411.15||$219,469.51|
|Paid per installment||$565.58||$823.27||$1,132.50|
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