How Mike Obtained A Mortgage With Ugly Credit Score

Mike was becoming desperate in his predicament.

He has been sending mortgage applications to every lender he could find online, on mainstream newspapers, and any banking branch that he has passed when out and about.

It was during this hectic and unfruitful process that he learned that he had a credit score hovering around the 500 mark.

Well… 498 to be exact. This is graded as a “very poor” FICO score according to Experian.

According to him, his situation is helpless and “doomed to failure” as he puts it.

On the surface, it’s hard to come up with superlatives that suggest otherwise.

But he finally walked into a mortgage broker’s office after being encouraged by a friend to do so.

This is a big step forward as Mike has always had a negative impression of brokers. In his opinion, they are just selling loans are readily available from traditional lenders. And because they are profit-driven, they would always sell loans with a markup.

The original goal was to learn more about his situation and remedies if possible. Not so much as to apply for a home loan through their channels as he already knows that his applications will get nowhere.

It was then that the events that led up to his dire credit situation was revealed to anyone else.

He had spent all his money on medical treatments because his wife was diagnosed with a rare life-threatening form of viral disease that her insurance policy did not cover.

Thus, he depleted all their saving for the expensive treatments his wife had to undergo.

This was the main reason why he was falling behind all their personal and joint debt obligations, including the current mortgage, that were causing late payment records to run rampant on his credit record.

Even so, there was just not enough money. He needed more.

This was why he needed to get a new mortgage. Not to refinance, but to buy a smaller house and sell the current one to raise cash.

As we can see, it’s not that Mike is a devil when it comes to repaying his debts.

While the bashing his credit is taking is a direct result of late and partial repayments, these repayments are a result of a bigger life problem that takes a higher priority.

He could have been able to meet his debt obligations with his salary going forward, especially with a more affordable and smaller house. But because of how fast these events took place, it seemed that no lender would touch his case with a fishing pole.

Even the bank he grew up with refused to return his calls after he submitted his application for and all required documents.

Talk about loyalty…

Thankfully, he finally found a solution with the help of a broker who was able to decipher everything in manner bankers would never do, and got eventually obtained an approval in an unconventional way.

While such loans will inevitably come with higher interest rates, points, and closing fees, Mike was just happy that he was able to buy a smaller house.

To him, doing so will be the starting point of getting his finances back in order again.

The higher interest rates seemed like a trade-off that was worthwhile.

What happened was this.

After valuing the property and going through the amortization with the monthly payments he had been making for years, it was easily determined that Mike had a lot of equity in the house.

This equity is of such a sufficient amount that a lender was willing to take it as a form for down payment for the purchase of the new house.

With such a large down payment, his monthly mortgage obligations became very affordable. When we consider that smaller house also has a much lower purchase price, it only makes the payments all the more affordable.

His debt ratios turn out to be at a very comfortable level in the lender’s perspective.

In fact, he passed all the credit assessment tests with flying colors except that his credit score was getting uglier by the day.

But the factor that really tipped the scale in Mike’s favor was that although his wife’s insurance do not cover the hospital bills, he had an insurance policy with a big enough coverage to fully repay the new house’s mortgage should she pass away.

While this is never a scenario that he would like to experience, this gave the lender enough confidence in the deal to view it as a good loan.

Maybe he submitted a proposal that went into details of his adverse predicament, good credit history (excluding the recent period), stable employment, etc.

But the main deciding components of the deal was the equity and insurance policy.

Being rejected by multiple lenders was expected when his case was assessed with standard underwriting protocols during the loan approval process.

It’s just a relief that Mike got out of his sticky and potentially financially crippling circumstances by going through and unconventional route.

However, it must be noted that the fact that he took action proactively probably played a huge part in the outcome.

If he had a credit record consisting of very bad delinquencies for 6 months, he might not have been so lucky.