Lending guidelines have tightened considerably over the past year, but getting a loan is still possible, even if your bank says no. While a few years ago about all you needed to get a loan was a pulse, today you're going to need some heavy-duty documentation to show that you're a solid credit risk to get past lending scrutiny. "It's getting tougher, but overall that's not a bad thing," says Jillayne Schlicke, a Seattle-based lecturer on the mortgage banking industry. "Too many bad loans were written for too many people, it's going to take time for the industry to right itself."
If you fill out the application at the bank and get a no, realize that the fight's not over. Although the sub-prime mortgage loan no longer exists, there are some alternative sources for funding that can get you your dream home:
The FHA -- The Federal Housing Administration has long been an outlet for people seeking to buy property but who haven't met the guidelines for conventional loans. FHA loans require you to show proof of income, the source of your down payment (in order to prove it's not a loan) and proof that the home you're buying is correctly valued. There are also lending limits which vary depending on the state. Not all brokers are licensed to handle FHA loans so if you may be in the market for this one, make sure your broker has worked with them before. The FHA programs are run under the Housing and Urban Development HUD) Department. For more on HUD and the FHA Programs in Michigan go to the FHA Web site for Michigan.
Credit Unions and Local Banks -- If you've been a longtime member of a credit union or if you've done business with a small local or state bank in the past, you might have a glimmer of hope there. Traditionally these institutions don't have a large amount invested in real estate and may not have been as hurt by the real estate downturn as other banks. Although they have to follow federal lending guidelines regarding your credit risk, income and the property you're buying, the loan manager whom you've dealt with in the past may be able to push your application through if it's on the borderline.
Private Lenders and Hard Money Loans -- Although these may sound like you're borrowing from "Jimmy the Fish" down at the waterfront, they're actually very legitimate. An investor or a group of investors invest money by lending you what you need to buy a house. The only catch is that the terms are generally less than generous. Expect interest rates to be as high as 15 percent to 20 percent, and they'll also want to make sure you're putting 30 percent to 50 percent down. The goal for most people who get these loans is to improve their credit situation and refinance into a conventional loan in two years or less.
State Programs -- Various states have homebuyer assistance programs that can help with everything from down payments to mortgage insurance. They're generally for low-income residents; however, some programs are for people in a certain profession, like teachers, or for those who participate in a state pension fund. In Michigan the program is administered by MSHDA - the Michigan State Housing Development Authority. For more on this low income assistance program go to the MSHDA Web site.
The USDA -- We sometimes jokingly call these the USDA Choice loans. They are made under a program that the United States Department of Agriculture set up to encourage rural home ownership, so the home that you're buying has to be in an area that the USDA has designated are being rural. Like the FHA programs there are other rules that apply and lending limits, so check with your mortgage broker to see if he/she handles this type of loan. To read more about this program and see how you can determine if the home that you want is in a “rural area”, go to the USDA Rural Development Web site for Michigan. For those readers in other states, just back the /mi off the Web site address above and click on that to start out at the national level and then go to your state.
If you fill out the application at the bank and get a no, realize that the fight's not over. Although the sub-prime mortgage loan no longer exists, there are some alternative sources for funding that can get you your dream home:
The FHA -- The Federal Housing Administration has long been an outlet for people seeking to buy property but who haven't met the guidelines for conventional loans. FHA loans require you to show proof of income, the source of your down payment (in order to prove it's not a loan) and proof that the home you're buying is correctly valued. There are also lending limits which vary depending on the state. Not all brokers are licensed to handle FHA loans so if you may be in the market for this one, make sure your broker has worked with them before. The FHA programs are run under the Housing and Urban Development HUD) Department. For more on HUD and the FHA Programs in Michigan go to the FHA Web site for Michigan.Credit Unions and Local Banks -- If you've been a longtime member of a credit union or if you've done business with a small local or state bank in the past, you might have a glimmer of hope there. Traditionally these institutions don't have a large amount invested in real estate and may not have been as hurt by the real estate downturn as other banks. Although they have to follow federal lending guidelines regarding your credit risk, income and the property you're buying, the loan manager whom you've dealt with in the past may be able to push your application through if it's on the borderline.
Private Lenders and Hard Money Loans -- Although these may sound like you're borrowing from "Jimmy the Fish" down at the waterfront, they're actually very legitimate. An investor or a group of investors invest money by lending you what you need to buy a house. The only catch is that the terms are generally less than generous. Expect interest rates to be as high as 15 percent to 20 percent, and they'll also want to make sure you're putting 30 percent to 50 percent down. The goal for most people who get these loans is to improve their credit situation and refinance into a conventional loan in two years or less.
State Programs -- Various states have homebuyer assistance programs that can help with everything from down payments to mortgage insurance. They're generally for low-income residents; however, some programs are for people in a certain profession, like teachers, or for those who participate in a state pension fund. In Michigan the program is administered by MSHDA - the Michigan State Housing Development Authority. For more on this low income assistance program go to the MSHDA Web site.
The USDA -- We sometimes jokingly call these the USDA Choice loans. They are made under a program that the United States Department of Agriculture set up to encourage rural home ownership, so the home that you're buying has to be in an area that the USDA has designated are being rural. Like the FHA programs there are other rules that apply and lending limits, so check with your mortgage broker to see if he/she handles this type of loan. To read more about this program and see how you can determine if the home that you want is in a “rural area”, go to the USDA Rural Development Web site for Michigan. For those readers in other states, just back the /mi off the Web site address above and click on that to start out at the national level and then go to your state. The point of all of this is that you shouldn't get discouraged and give up, just because some big, snooty bank said no. They're probably too busy counting their Federal bailout money to bother with new loans. Call your Credit Union and talk to them or get with a good mortgage broker ( I can definitely recommend Agnes Miesch with John Adams Mortgage at 248-535-5566) who can look at all of these programs for you to see if any will work for you. There's still mortgage money out there, if you have reasonable credit and the patience and persistence to go after it.
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