In the modern lending industry today, where the most brilliant and creative minds are conceptualizing new types of loans while sipping a cocktail at the beach, the only reason you are unable to qualify for a mortgage is that you haven’t been looking hard enough.
It’s not an exaggeration to say that new loan programs are introduced into the market every other week.
And instead of traditional mortgages where credit plays a huge part in approvals, this is no longer the case these days.
Home loans are now customized to meet almost every specific credit situation that a borrower can get himself into.
Even as certain types are loans are removed from the market, new ones that are quite similar enter the market under a different fancier name.
If you are not aware of the level of customization to target niches that are available, consider that there are not loans specially for:
- First timers
- Bad credit
- Zero down
- Police officers
- Medical staff
- “Bad” neighborhoods
The list can go on but there is simply not enough space on this page to list them down comprehensively.
If you are unable to qualify for a housing loan due to credit problems for example, the trade-off will of course be higher costs in the form of higher interest rates and more expensive closing costs.
It might be time to step into the sub-prime circus.
But honestly speaking, when has a homeowner refused to buy a house just because his mortgage would be a percentage point or two above market rates?
A home loan is a by-product of a home purchase.
Meaning people apply for them because they are buying house. Other than investors who make up the minority, the majority of people don’t buy a house because the loans are cheap.
Home buyers tend to decide on buying a house, after which they shop for the best mortgages they are eligible and qualify for. Sort of like deciding on a vacation trip to Hawaii and then searching for the best air tickets that are either the cheapest or delivers the most value.
The subprime market actually plays an important role in society in that it enables people with lower income own their own homes.
So much so that there are even lenders who only do sub-prime mortgages.
Yet don’t mistake them as playing the role of Santa Claus or a fairy godmother. Lenders actually do go through the numbers to ensure that the loans they originate do make sense.
It’s just that their tolerance level is much higher than lenders who only offer traditional housing loans.
For example, some sub-prime lenders might have programs that don’t require borrowers to commit to a down payment. But to entice them to make a down payment, they might offer markedly better terms and interest rates should the borrower put a 20% down on the property.
The question really is whether you want that mortgage bad enough to pay for higher interest rates.
In fact, I feel that brokers and lenders who charge a high price are playing a part in deterring buyers who cannot afford their homes to reconsider their purchases.
Many people with less than satisfactory credit scores actually think that they will never be able to obtain a mortgage approval for the loan amount they desire.
This might be because they have only tried applying with big lenders who has little appetite for risks and couldn’t even get pass automated underwriting system due to credit issues.
But if you just walk in on a mortgage broker or two, you are going to find that you have more options and alternatives than you can literally count with your fingers.
However, a big mistake that borrowers with financial problems make is to avoid telling loan officers the whole truth about their financial difficulties, possibly due to embarrassment.
Doing so is not going to be good for all parties.
Not telling the whole truth and hiding debts that can’t be traced might be able get a loan approved. But eventually, it will come back to haunt you when you encounter payment problems in future, potentially bringing you back to square one.
Only by knowing as much material information about your financial position will a loan officer be able to identify or craft a mortgage that suits you.
Even if it has higher interest rates, a lower monthly payment will help you avoid delinquencies and possible default.
Knowing what a problem is might even help the officer package a solution into the mortgage that will solve it.
An even worse mistake is to lie.
If you ever run into any broker or banker that encourages you to directly or indirectly make false declarations, you should run towards the nearest exit before you get thrown into the shark tank.
Mortgage fraud is a crime that is punishable by law.
Even if declaring an income slightly higher than reality can seem like an “innocent” oversight on your part, a lender can still claim a breach of contract and accelerate the loan.
If income level is a critical issue, the better way forward is to seek a mortgage with no income documentation in the first place.
Even if the costs might be higher, at least you can walk with your head held high without fearing for being found out during application or years later.
Then there are lenders who will push you towards larger loans which you cannot realistically afford.
They approve a huge loan quantum and advise you to buy a bigger house.
Don’t get tempted by such gimmicks. Stick to the house you can afford or your could be looking at foreclose in the near future.
Finally, before you go out and seek these creative mortgages that might overwhelm you, remember that everything has to make financial sense.
If you feel that you won’t be able to afford the loan, the pragmatic decision is to either walk away from buying the house, buy a smaller house, or buy it in future when you feel that you can comfortably afford it.