Good Credit is King, When
Qualifying for Mortgage Programs
By Mark Barnes
If you
want to purchase a new home or refinance your current
mortgage, be sure to check out the wide array of loan
programs available. If you have less than
excellent or even poor credit, you can still qualify
for a loan. If you have outstanding credit,
though, you are in the proverbial driver's seat, when
it comes to selecting your loan program. Be sure to
find a good mortgage consultant, and carefully
explain exactly what you need. Here are just a couple
of "outside-the-box" programs that come in
handy for some people but require excellent credit
ratings.
Stated
loan programs are designed for a person
whose income or assets fluctuate from month to month
and year to year. Not many banks offer stated
programs. Many people who need stated programs get
turned down by not only banks but by inexperienced
mortgage brokers who don’t understand the breadth
of the programs at their fingertips. So, you may have
to enlighten them with your own insight by telling
them this is the program you need.
Stated
programs are for people who may not qualify
for a conventional loan, because they do not meet
income requirements a lender has. A prime example is
someone who does not show all of her income on a W-2
tax return, for one reason or another. This person
may make enough money to cover the mortgage payment,
but she can’t prove she makes it on paper. Lenders
like to see two years of W-2 income. This proves to
them that you consistently make enough money to pay
back the loan. Now, it’s important to note that
this is a good credit program, and a lender will want
someone with at least A-minus credit for approval.
Here is where all that work to maintain your spartan
credit record is going to pay off.
What the stated
loan requires is all standard documents, except
income verification. In other words, the loan officer
is going to state your income on the application, and
no proof is required. Please note that this program
is not intended for someone who works at McDonalds to
try to state that he makes $200,000 yearly, so he can
get approved for a $400,000 loan. It is intended for
people, like salesmen, whose income varies or for
businessmen, who work on bonuses, which they may not
receive until the next year. As long as the income is
reasonable for the profession, no underwriter will
ever question it. So, if you needed to make 60,000
yearly for approval, but you only show $54,000 on
last year’s W-2, your mortgage broker can get you a
stated income program, and he will simply write
$60,00 on the application. Don’t worry, the lender
won’t ask for pay stubs or tax returns. Your credit
rating speaks for itself. In other words, the lender
sees that you have an excellent payment history on
your other debts, so he is willing to take on a bit
more risk.
A stated
asset program works the same way,
and good credit is required for approval in this
program, too. Lenders require cash reserves, in order
to cover several months of mortgage payments, in the
event something goes wrong after the loan closes,
like you lose your job or get hurt. This can be a
problem for people who have no savings, stocks, or
retirement accounts, which are all acceptable forms
of reserves. If you fall into this category, you
simply ask for a stated asset loan, and the mortgage
broker will state enough assets on your loan
application to appease the lender.
This seems
fraudulent, you might say. It isn’t, as long as you
follow the guidelines set forth by the lenders.
Remember, they created these programs, so they could
loan more money. You’ll pay, of course, because the
lender will hit you with a premium on your rate,
because the loan is more of a risk. So, instead of
getting a 6% rate, you might get as high as 6.75%,
but at least you’ll get your loan.
There are
many other loan programs that allow you to borrow
more of the equity in the house, let's say up to 95%
or even 100%, due to a great credit rating. Some
programs allow for an improvement on your interest
rate.
It's always
important to ask your mortgage broker if there is
some kind of incentive because you have A or A+
credit. Most lenders allow the mortgage broker to
either give you the break in rate, or they'll give it
to the broker in a cash commission. Many unscrupulous
brokers will never mention the credit bonus to you,
and they'll make up to .25% of the loan amount for
themselves.
So, if you had
a $200,000 loan, and the lender allowed a .25%
interest reduction or commission to the broker, and
the broker takes it, instead of giving it to you,
that mortgage broker would make $500.00 extra
dollars, which would be paid by the lender. Of
course, if you had received the .25% better rate,
your payment would decrease by about $30.00 each
month and $360.00 each year. That's nearly $2,000 if
you have the loan for five years that you would lose
to a greedy mortgage broker. So, always ask for
something, due to your excellent credit.
And always
remember, with good credit, you are king. And kings
always make the rules.
_________________________
About the
Author:
Mark
Barnes is author of Winning the Mortgage Game and
several other finance books. He is also publisher of
Biz Sense Online and Let’s Talk Sports, weekly
business and entertainment ezines. Learn how you can
educate yourself and give to charity at the same
time, when you purchase Winning the Mortgage Game at www.winningthemortgagegame.com. To
get Biz Sense Online, send a blank e-mail to bizsenseonline@getresponse.com. To
get Let’s Talk Sports, send a blank e-mail to letstalksports@getresponse.com
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