There are very few people out there with the kind of money it takes to buy a home outright. For most of us a mortgage is a necessity if we ever want to own a home. In the wake of the financial crisis government regulators decided that there should be a few more rules on who can and who cannot get a loan for house. These more stringent regulations have left some people without a lot of obvious options when they want to buy a house.
If you are denied a straightforward mortgage from your favorite bank, you will need to get a little more creative about your financing if you want to wind up living in the property you want. We asked Bill Gassett, a top Grafton MA Real Estate agent to share his thoughts on where to get a loan when a mortgage lender says no. Here are some of the best tips for getting a mortgage when the going gets tough according to Gassett.
What to do if Your Lender Says No
Find a small bank – The smaller banks out there do not always have to play by the same rules as larger lending institutions. There are good reasons for this. Unlike the larger banks, small banks tended to lend more conservatively and were generally not at fault for the catastrophic situation the country wound up in so recently. Small bankers – those that make 500 first mortgages or less and have under $2 billion in assets – get to be more flexible with who they loan to.
Don’t be fooled into thinking you can just go into a small bank and walk out with your money though. The reason these banks avoided the problems of larger institutions was because they were more conservative in how they lent. They are one option on your quest to get a mortgage, but they may not be your last stop. They may deny you for the same reasons the larger institutions did.
They can also charge you higher interest and fees than bigger banks, especially on smaller loans. This is a necessity to cover their costs – things like title searches cost the same no matter the loan amount. Without question getting a loan today is more difficult than it was in the past before the housing bust.
This makes it essential for borrowers to prepare to get a mortgage well in advance of actually making an application. Having your financial ducks in a row is crucial is you expect to get a mortgage today. Walking into a lending institution unprepared is not a wise move. In this environment getting a low mortgage interest rate is still possible you just have to know how to do it.
Seek a government guarantee – Lenders with government guarantees like Freddie Mac and Fannie Mae, the VA, the Federal Housing Administration and the U.S. Department of Agriculture’s rural housing loan program are all allowed to lend differently than standard banks. While your average big bank can allow you to take out 43% or less of your income in debt, these institutions with government backing can lend more.
This is important when you are living on a limited income. Housing prices are not cheap and for many people the cost of buying a home, combined with a car, can easily peak over that 43% mark. If you are in this situation you are not alone. Fortunately these particular lending institutions have the option of lending to you anyway. If you qualify, you may be able to still get your home even if you financial situation is not ideal. The rural housing or USDA Loan works great for those borrowers who have limited down payment funds.
Contact the State Housing Finance Authority – The State Housing Finance Authority in your state works with people who want to buy homes but do not have perfect financial situations – specifically with first-time home buyers and those with low to moderate incomes. They have the ability to lend to you when many other institutions can’t – even to the point of allowing you to put down only 3% on the home.
This does come with a catch, but it is a beneficial one. If you are given financing then you will need to complete a financial education course through the agency. While you could look at this as a negative and a waste of time, it would be more useful to see it as a bonus. Pay attention and you may learn some information that can make you more financially secure – something everyone wants.
Look for community-specific lenders – There are a number of community development nonprofits that work to rehabilitate neighborhoods across the U.S. Especially after the housing crisis there were a number of neighborhoods in desperate need of help and these organizations have worked to come to the rescue. They are not limitless in their funding – they must give out only 200 loans a year to avoid standard regulations – but they can often help when others cannot.
Whether you have access to this type of nonprofit will depend on where you are trying to buy. However, you may be surprised to discover that others besides you are interested in revitalizing the area you are looking to buy your home in.
Family – This may seem like a no-go area, depending on your family, but looking for help from those closest to you is something many home buyers wind up doing when denied their first mortgage. Looking to parents for co-signing or for a down payment loan is something many people have done in the past and something many more will do in the future. The beauty of asking family for help is they know whether or not you are fiscally responsible with your finances. There is no shame in looking for help from the people that care about you, especially if they have the means to do so and they know you will be good for the money.
It is also worth remembering that explaining your situation to people close to you could open up some doors. They may have just gone through a similar struggle and found some local answers that you would never learn about on your own. Let friends and family know you are looking to buy a house and see if they have any answers you may have not thought of yet to get your funding. There are a surprising number of people doing the same thing – 5 to 7 percent of all buyers, according to some estimates. Use these tips and you just may find yourself with a loan that you thought at first was going to be impossible to get. All of these places are viable options to get a loan when a mortgage lender says no!