Loan product developments in recent years have greatly expanded the options available for all home buyers. Today’s loan programs offer borrowers opportunities to maximize buying power, save cash for repairs or improvements, get a loan with little or no income verification, or even buy a home with little or no down payment. Now we will discuss some of the ways buyers can take advantage of the expanding loan market to secure the best financing available today.
- No-income verification loans
- 80/10/10 combinations (80% 1st mortgage, 10% down, 10% 2nd paid by lender or seller)
We can pre-qualify you as a borrower without specific property information. In other words, your loan information is used for full underwriting and includes your employment information, asset information, and credit history. We can then pre-qualify you as a borrower, subject to a maximum loan amount, down payment, and interest rate.
Getting prequalified for a loan is critical in today’s real estate environment. Many Realtors® do not want to accept offers from buyers unless they are pre-qualified for a home loan. By going through the loan process prior to signing a purchase contract on a home, you can eliminate all of the obstacles to borrowing without jeopardizing an actual purchase transaction. Once your loan is approved, your real loan closing will be quick and subject only to a satisfactory appraisal and title report on the home.
To begin the prequalification process you need to make some assumptions about your purchase price, loan amount, and loan program. Any of these assumptions can change once you’ve found your home, but it helps to do the following:
- Complete your application for the maximum loan amount and purchase price that you’re interested in. We can always change these later.
- Get your loan approved at an interest rate that is somewhat higher than what you expect to get. Again, we can always change it later.
The prequalification of your loan will ensure that your real purchase will go smoothly once you have located the perfect home.
No income verification loans
No income verification mortgage loans were very popular in the early 2000’s. They provided loans to anyone with a certain credit score without verification of income. Generally these loans are used by self-employed borrowers who have difficulty verifying all of their income, or by borrowers with very complex income structures.These loans are high risk and many borrowers entered into loans that they were unable to repay. As a result, many lenders have now removed no income verification loans as loan options.
Is it possible to get a Stated Loan still?
There are still lenders available that can provide a no income verification stated loan but they are harder to get. Typically, these loans are only available to the self-employed borrower and require a significant down payment. Additionally, the credit score of the borrower must be impeccable.
The loans are offered at much higher interest rates, many times making them unaffordable. For example, if rates are 6 percent, no verification loans rates can be 10 to 12 percent and thousands of dollars more to acquire. These high rates mean payments are higher and loans are typically unaffordable.
No Income Verification Loan Information
Make sure that you properly state your income. Many people were tempted by beautiful homes and stated they earned higher incomes than they actually made. This is one of the many reasons that so many loans defaulted.
Take an honest approach to income and debt. Be sure that you examine all additional fees, such as mortgage insurance, taxes, and fire insurance. In addition, factor in maintenance, utility costs, trash collection, and other fees associated with the home. Before you buy a home, be sure you know the full picture.
You may find it makes more sense to use a traditional loan and reap the benefits of the lower monthly payment they can offer. You may have to provide the lender with more documents, but it will usually save you thousands in interest and closing costs. We’ll help you compare the costs of a no verification loan to a regular loan, then ask for a “needs” list from your lender. The needs list will provide with a list of documentation required to qualify the loan. You may find the list might not be as long as you thought.
We will help you with your decision-making process and give you a comparison of programs and fees.
You can avoid mortgage insurance with 80/10/10 financing
One way to avoid having to pay mortgage insurance is to purchase a home with a combination first and second mortgage. The first mortgage would be limited to 80% of the home’s appraised value. The second mortgage, which would close in conjunction with the first, would then provide for the difference between the home’s purchase price, less the 80% first mortgage, less the down payment available. In other words, if you have a 10% down payment available, your first loan would provide for the 80% mortgage with a second mortgage of 10%. This is commonly referred to as an “80-10-10” transaction.
Another way to avoid incurring mortgage insurance payments is to find a lender that offers self-insured programs. This type of loan would typically have a higher interest rate in place of the private mortgage insurance premium. The decision of whether to obtain a loan with mortgage insurance versus the above two options should take into account the combined monthly payments of the various options, adjusted for the tax benefits of interest deductions.