The Mortgage Process

Qualifying for a Mortgage Loan
First let me caveat this post with the fact that I am not a mortgage specialist and this is a bit outside my usual realm of expertise. To verify this information or delve deeper into it, I would consult a mortgage broker. However, as a Realtor, we do know a lot about the mortgage process. Before I was a Realtor, I worked for a loan officer. So I do know a few things……I hope this guide helps!

Banks don't loan money to just anybody. They want to feel secure that you're able and responsible enough to pay them back, especially since the sub-prime fiasco. So you'll usually need these things in order for the bank to give you a loan:
*Enough money for the Down Payment (3 to 20% of the purchase price)
*Two years of steady employment (same job or field)
*Good (not perfect) credit score (thought the better the credit the better the interest rate)
*Income that's 2 to 3 times higher than your expected mortgage payment

If you don't have all these things right now don't fret. You still have some options.
Meet with a lender anyway. Don't just assume you can't get a mortgage. It can't hurt to go talk to a bank and see whether they're willing to give you a loan. Even if they won't give you a loan they can probably help you by letting you know where the deficiencies are, so you can work towards qualifying in the future.

Try for a Low-Doc or No-Doc Loan. In recent years banks have been offering loans to people who can't (or don't want to) provide details about their income or their employment. The most popular is called a Stated Income loan because you just "state" how much income you have without offering any proof. It's also called NIV for "No Income Verification" because your income isn't verified. With No Ratio and No Doc loans, you don't even say how much you make. You can think of these as "Don't Ask, Don't Tell" loans. The No Doc is also called NINA, for "No Income & No Asset verification". Because income is never proven with any of these loans I joking call them the "Drug Dealer Loans", though of course there are many legitimate reasons for wanting a loan of this type. People such as myself who are self-employed or commission based often have a lot of tax write-offs and that hurts you in qualifying for a loan. My good credit, and my willingness to pay a tiny amount of extra interest, was enough to get me the loan without having to supply any paperwork. So this program is perfect for this group of people. The draw backs to these loans are usually a higher interest rate and a minimum down payment of 10%. Since the bank is taking a bigger risk on you with a No-Doc or Low-Doc loan, the interest rate is higher than on a traditional loan, and the exact amount depends on your credit score, your lender's preference, and which flavor of low-doc/no-doc loan you get. The premium you'll pay will range 0.125 to 3.0 percentage points over a traditional loan.

Use a Mortgage Broker. A mortgage broker represents lots of different lenders so they can shop around to try to find one who will make you a loan. They charge a fee for this service but if you can't get a mortgage otherwise then it could be worth it. You can find mortgage brokers in the homes section of the newspaper classifieds and in the yellow pages. But usually the best ones you find are the ones that come recommended to you from your trusty Realtor, friends, family, or coworkers.

If you have a hard time qualifying for what you want or are denied, don’t give up! Get a co-signer! See if a family member or very close friend with a higher income and better credit than yours will cosign a loan for you. That means that the loan will be yours and you'll be responsible for paying it, but if you don't, the cosigner will have to pay it. Obviously the cosigner will have to have a great deal of trust in you for this option to work and to violate that trust is terrible. This is only the way to go if you know you can afford the place. Many people go this route when they know they will have a roommate or a significant other paying half the mortgage (which is not used in qualifying you for a loan).
Another option in the case of denial in lieu of a cosigner is to have a friend or family member buy the house, and rent-to-own it from them. Friends and family might be wary of co-signing a loan for you because their credit gets ruined if you don't make the house payments, and they have little recourse against you. A more attractive alternative is to have your friend or family member buy the house in their name, and then rent it to you with an option to buy. My parents did this for me when I first started out and it put me in a good position to buy my next home!

Here's how it works: You'll make the mortgage payments and pay for taxes, insurance, and maintenance, as your "rent". You can get the house in your name by either making all the payments after 30 years, or by buying the house for the amount of the remaining mortgage once your credit or income improves enough for you to get your own loan. If you fail to make your payments, you forfeit your right to buy the house, and your friend/family member can either pick up the payments or sell the house. Either way, they're not out because they already own the house. They don't have to foreclose if you don't pay, because the house was already in their name. For that reason this arrangement can be more attractive to them than the idea of their being a cosigner.
In fact, if you don't have the money for a down payment, your friend/family member might loan you the money for the down payment as well -- usually for a slightly higher interest rate than the mortgage.
A downside of having someone buy the house for you is that the interest rate will be about 1% higher because the house will be considered investment property for the buyer and not a residence, since they're not going to live in it. Still, if the only way you can get yourself into your own home is to pay a little more interest, it might be worth it.
Plan for the future. Even if you can't buy a home right this very minute if you make home-owning a serious goal then within two years you can probably overcome most or all of any obstacles above.
If you have any questions about this post or want to continue this discussion beyond the customary comment, email me at lizgermanos@yahoo.com. If you are interested in real estate in Hampton Roads and need an agent to guide, please feel free to also email me.