July 19th, 2018 6:50 AM by Jackie A. Graves
dream of homeownership seems attainable for everyone but you. Maybe you don’t
have a large down payment saved up, or you’ve been at your job for less than a
year. Perhaps you have dings on your credit report.
reason, experts agree that many Americans don’t think they can qualify for a mortgage. The only problem
is, most of them are wrong.
of people assume they can’t get a home loan,” says Ryan Grant, a southern California-based
mortgage lender. He cites lack of knowledge as the main reason would-be buyers
don’t try to get financing.
think you can’t change your job and get a mortgage and you absolutely can. Most
people think you need to have 20 percent down and you don’t. Most people think
you need to have a lot more money than you do,” Grant says.
or a limited credit history are not deal breakers to qualifying for a
loan. Even non-citizens who just moved to the states can get a mortgage.
consumers should know before they close the door on homebuying.
with foreclosures on their record
can make many would-be borrowers feel as if they’re benched from buying another
home for at least seven years. The good news is that although a foreclosure
will stay on your FICO report that long, the impact can diminish over time.
foreclosure represents just one event in your entire credit picture, you can
counterbalance it with positive factors such as a low debt-to-income ratio and
an established credit history. If everything else on your report is in good
standing, your FICO score can improve in as few as two years.
options available for people who are just a day out of foreclosure, explains
Grant. For example, since these borrowers won’t qualify for a traditional loan,
they can go with what’s known as a portfolio lender. Because these lenders keep
the loan for their own portfolio rather than sell them, they are assuming all
the risk and may be more lenient with their underwriting standards. However,
the down payment and interest rate is usually higher to compensate for the
lender might make sense if you are intent on living in a certain area that has
little rental housing or you want to lock in a house before prices and rates
rise even more.
you want to do is control your cost of living and not be told where to live and
how much to pay or that you have to move or potentially be priced out of the
market,” Grant says. “With the expectation of housing prices continuing to
climb anywhere from 3 to 8 percent over the next five years, most people want
to get into a home now when it’s a little more affordable. Over time they can
refinance down into better terms.”
The cost of
waiting to buy a home can be high in this rising-rate environment. Borrowers
who get a 30-year fixed-rate mortgage at 4.5 percent on a $300,000 house will
end up paying about $1,520 per month. Conversely, a rate of 7 percent will cost
$1,996 per month, a $476 a month difference.
is an FHA loan, which would likely have better terms than a portfolio lender.
Generally, FHA requires that the foreclosure is at least three years old before
they grant the borrower a loan, but there are exceptions. In such cases,
the applicant’s finances are closely scrutinized to ensure they can and will
repay the loan, Brian Sullivan, a HUD spokesperson, says.
“We have a
rule that you have to wait three years after such an event to get back into a
mortgage, certainly an FHA-insured mortgage. Under certain limited
circumstances that could be shorter,” Sullivan says. “The lender would have to
be certain you have cured the reasons for your prior default–largely it’s based
on employment. They’d have to certify that you’re back. And then that mortgage
would have to be manually underwritten.”
It’s wise to
speak with a financial counselor before attempting homeownership after a
foreclosure, advises Sullivan.
prospective borrowers often have limited credit and employment history. A
typical scenario is a recent college graduate who has just started a career and
can afford a mortgage, but their salary history isn’t sufficient to meet most
underwriting requirements. They usually don’t have lengthy credit histories
which can lower their FICO scores, hurting their ability to get a loan.
consumers have a credit union account, then they might be in luck, according to
Randy Hopper, Navy Federal Credit Union SVP of mortgage lending. Because many
credit unions do manual underwriting, which allows them to skirt the rigid
standard imposed by Fannie Mae, borrowers who don’t tick all the required boxes
have a shot at getting a mortgage.
who are new to credit, such as first-time homebuyers, may believe that a
relatively high credit score and a 20 percent down payment are required for a
mortgage to begin house hunting,” Hopper says. “While a high credit score and
large down payment are a good way to secure the most favorable terms, they are
not necessarily a requirement to buy a home.”
often a source of help for younger buyers, particularly millennials who now
make up the largest demographic group. Parents can come in as loan co-signers
or gift their child money for a down payment.
One of the
main reasons millennials need a parent’s help is not because of credit issues,
but because their salary history is short, Grant explains.
“A lot of our
millennial clients don’t necessarily need a co-signer from a credit perspective
because they’ll have a student loan, car payment or a credit card. Typically,
they have really good credit scores. Sometimes the issue is that they’re at a
new job and they’re earning commission, but we can’t use their commission for
an average of two years; so they’re really making that money but we can’t use
it,” Grant says.
who are not U.S. citizens, getting a mortgage might seem impossible. The
opposite is true. Depending on their status, non-citizens who live in the U.S.
have the same mortgage options as citizens. The exception is foreign nationals
whose primary residence is outside of the U.S.
The two types
of non-US citizens who are eligible for Fannie Mae-backed loans are: permanent
residents with a green card and non-permanent residents with a valid work visa.
These folks can also apply for FHA loans.
The one challenge
might be proving their creditworthiness, Grant says. If their credit history is
based overseas, an underwriter can use an international credit report as well
as alternative lines to create a credit profile. Alternative lines include
credit that doesn’t show up on a credit report, such as rent and phone bills.
different programs through Fannie Mae, Freddie Mac and FHA that allow for use
of alternative credit lines. There are even no credit score options through
FHA,” Grant says. “They’re able to be used through manual underwriting so it
wouldn’t be a normal automated underwrite, which is the majority of what
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