Fresh Start Home Owner Loan Program
The Fresh Start Loan Program was created for homeowners who have previously experienced foreclosure, short sale, or bankruptcy and could not qualify for a conventional home loan currently.Why do we need so much personal financial information for a privately funded home loan?
Capstone Mortgage originates loans to home owners that cannot qualify for a conventional home loan and Capstone arranges for private financing of these loans. Consequently, many potential borrowers believe that they are getting a “hard-money” loan and that the lender will not need as much information as is required for a conventional loan. Although the loans are privately financed, this does not mean the loan is a “hard-money” loan.
A ‘hard-money” loan is a loan whereby the lender only looks to the value of the collateral when determining whether to make a loan – i.e., when it “underwrites” a loan. Hard-money loans are for the most part limited to commercial transactions and are not as regulated as home loans. The process of making a loan to a borrower that is using their home to secure repayment of the loan is, on the other hand, heavily regulated regardless of whether the borrower is purchasing a new home, refinancing an existing home loan or is taking cash out of the built-up equity in their home.
As a lender, we must comply with a variety of federal, state and local laws including, but not limited to, the “Truth-in-Lending Act” (or “TILA”) and most recently the Dodd-Frank law. Consequently, a fresh start home loan to a home owner is fundamentally different from a hard-money loan. First, we underwrite the borrower. We must determine that the borrower has the ability to repay the loan. Only after first determining whether a borrower can repay a loan do we appraise the value of the home. In order to underwrite the borrower, we must review numerous documents including tax returns, checking account statements, W2s, etc… In other words, we underwrite and process a loan to a home owner exactly as if it were a conventional loan. The primary difference is that we will make a loan to a borrower if we conclude they have the ability to repay the loan even if in their recent past they have experienced a foreclosure, bankruptcy or short sale. This is the basis for our Fresh Start Home Loans.
Many of the federal regulations make sense and constitute good lending practices. However, many of the regulations are overly burdensome and only add to the cost of getting a loan while not making the process any safer. Nevertheless, the law is the law and as a lender we are obligated to follow it.
We hope this explanation is helpful. Thank you for your time and we hope you consider us as your lender.