Home Buying in 49002>Question Details

3yl, Home Buyer in Portage, MI

Will a bank give a mortgage based on collateral? Here is the situation - we have very poor credit currently,

Asked by 3yl, Portage, MI Sat Apr 26, 2008

due to many problems (like lots of people - laid off, plant closure, lots of credit cards, student loans, etc.) However, our current home is paid for (probably worth around $100,000 - maybe less today.) We would like to buy a house for around $200,000. We could put an IRA worth $200,000 up as collateral for a mortgage. Is something like that even possible? Our purchase would not be contingent on the sale of our current house - we would want to be out quickly and the current house needs some work before we would be comfortable selling it. We could probably hold on to it until the market started turning around.

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As a general rule (and you should plan on this), the collateral for a mortgage is the subject property. That means if you get a purchase mortgage for the new house, the collateral is the new house. Other assets such as your IRA are not collateral. They may show that you have reserves and bolster your overall credit profile. But mortgage loans are for real property, and real property is the collateral that secures them. So, in answer to your question... Yes, a bank will give a mortgage based on collateral. A mortgage is *always* based on collateral. But while collateral is essential, it is not the sole basis for decisioning a loan. A variety of other aspects of the loan scenario are factored in as well (such as the type of property, the type of occupancy, the percentage to be financed, etc). But more to the point for your situation, collateral and liquid assets do not give you a pass on other critical requirements of obtaining a mortgage. Your willingness and ability to repay the debt must also pass muster. That means your credit history, employment and income have to be taken into account... If, as you said, your credit is very poor and you have been laid off, you would find it challenging to obtain a new mortgage, even on your current home. In that situation, trying to buy a new home without selling your existing home would not appear financially prudent to any institutional lender in the United States...
1 vote Thank Flag Link Tue Sep 2, 2008
3yl, very interesting question. I would highly suggest that you speak with a reputable lender that could help you with this question. Find one that if they don't know the answer they will do a lot of research to help you out with this. I do know one bank that might consider doing this here in Western Michigan. If you want the name and number for that loan officer just go through my website at http://www.GoMelinda.com and request this information. I will be happy to provide it for you.

I hope this information helps! Best Wishes!
Web Reference: http://www.gomelinda.com/
1 vote Thank Flag Link Tue Apr 29, 2008
If you would like more information please call, 810-343-4170. Yes you can purchase a home through an IRA. I would be happy to assist you!
Web Reference: http://www.rjhomeloans.us
1 vote Thank Flag Link Mon Apr 28, 2008
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0 votes Thank Flag Link Sat Jun 7, 2014
good morning....contact first national bank of america....their website is fnba.com.. they are located in east lansing....and would probably accomodate your deal....best regards....bob mcclure- first preferred mortgage- southfield, michigan....
0 votes Thank Flag Link Fri Mar 12, 2010
My Mom tried to get a small personal loan with her house and car as collateral and her bank said NO because her credit wa only 615/ They told her that it didn't matter what she had for collateral, if her credit was not at least 620, they would not lend a dime. This sounds totally stupid to me.
Flag Sat Sep 6, 2014
This may not be exactly the answer that you are looking for but Lake Michigan Credit Union has just announced a Pledged Deposit lending product. LMCU is limited to the Michigan Market.

It allows for a 100% financing with a pledged LMCU deposit account in lieu of down payment, however the borrower must have 3% of their own money into either closing costs or down payment or a combination of both. While this is limited to $417,000 we can consider Jumbo loans. Fixed rate and ARM's are allowed, minimum pledge amount is 5%. Mortgage insurance is available and required for loans over 80% LTV, however the Credit Union enjoys preferred pricing on PMI to make payments less costly. The minimum credit score is 700 with a DTI of 41%. Borrower must be able to demonstrate 2 months reserves. The Pledge may come from a family member. A 401k or other deferred retirement account is not allowed. The borrower may pledge their own funds also. 680 credit is required in Non-restricted markets, 700 in Tier One restricted markets and not allowed in Tier Two restricted markets. Pricing is identical to non-pledged loans with no premiums added.

For more information :
Roger Danielski, Loan Officer
Lake Michigan Home Mortgage
616-242-9790 x 9275
roger.danielski@lmcu.org
0 votes Thank Flag Link Fri Mar 12, 2010
The short answer is yes.

The long answer is contact a group of reputable lenders and find out what products they offer.
0 votes Thank Flag Link Fri Apr 24, 2009
Bond corporation in Grand Rapids still offers hard money type loans. They will loan based on SEV and consider case by case scenarios. You may consider using them to apply for the funds you need to complete your exisiting house. This new loan may help rebuild your credit. Then when the market allows, sell your home and use the equity from the sale as your large down payment.
Web Reference: http://www.REOmamma.com
0 votes Thank Flag Link Fri Dec 12, 2008
yes, things like what you are asking can be done.....the cost of the money would be higher because of the credit risk.......i have several sources for your type of situatuion....best regards......bob mcclure- mortgage now- farmington, michigan.......
0 votes Thank Flag Link Wed Sep 3, 2008
This is called cross collateralizing and I believe you can use a roth ira to do this. Contact Margo at site below she's in Paw Paw. Herb
0 votes Thank Flag Link Tue Sep 2, 2008
I'm not a lawyer or an accountant, so this isn't legal or accounting advice. However...

You can use IRAs to purchase real estate. However, there are some strict limits that you'd have to work around. First, you actually use the IRA money, not just pledge it. However, if any loan is involved, it must be a non-recourse loan. Second, it can't be for your personal use. Investment is fine; personal use or benefit is not allowed. For more information, go to http://www.trustetc.com/ and http://www.securitytrustcompany.com/

However, you might be better off cleaning up your credit and getting your finances in order. You ultimately would be in a better position to buy a new house, and you wouldn't face the threat of having two houses (even though the first one is paid for), and not being able to sell one.

Check with a good financial planner for guidance.

Good luck.
0 votes Thank Flag Link Wed May 7, 2008
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
Contact
To follow up with this question....an IRA transaction is based off of the property, not your credit score! You will have to have substantial amount of money for a down payment. Let me know if I can be of assistance.
0 votes Thank Flag Link Wed May 7, 2008
I have a great Rent to own program and have delt with this type of situation before. You will need to call me so we can discuss the situation in detail. John 616-299-0757
0 votes Thank Flag Link Sun Apr 27, 2008
3yl, I tried to do this also. I was told that because IRA's receive special treatment from the IRS because the customer does not have use of those funds. If they can pledge them as collateral, they'd effectively have use.

I suggest speaking with a financial planner or your lender to verify the above. I do agree with you not placing your home on the market unless absolutely necessary.
Web Reference: http://www.mi-living.com
0 votes Thank Flag Link Sun Apr 27, 2008
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