Some potential buyers face
circumstances that cause a lender to reject the mortgage,
require additional information to approve it or modify the terms.
Many special circumstances are simply circumstantial, including
being at your current job less than a year or being
self-employed.
Here are some common special mortgage
situations that occur:
A problem appraisal
Homes often appraise for a different
amount than the purchase price. Sometimes, the appraisal is less
than what you agreed to purchase the property for. This can create a
variety of problems, especially if you were looking to put down a
small down payment and the appraised value is less than you were
looking to borrow.
If the appraisal is less than the
loan amount, you may have to come up with a larger down payment to
cover the difference or renegotiate the purchase price before the
lender will lend you any money.
For example, you are approved to
borrow $97,000 to purchase a $100,000 home. You are planning to put
$3,000 down on the mortgage. The appraiser reports that the home is
only worth $95,000. The lender will not give you more money than the
home is worth. You will either have to negotiate for a lower
purchase price or pay the original price with more out of your
pocket. The most the lender will probably lend you is $92,150. You
will have to find the remaining $7,850 cash for the
purchase.
Buying a condo or
townhouse
There are special considerations when
purchasing a condo or townhouse. What you are purchasing is the
exclusive ownership of the interior space of the unit and the joint
ownership of the common areas, which include walls, grounds, fences
and facilities. A townhouse may include a backyard and a garage.
Your mortgage lender will want to
take a close look at the complex's financial and physical status to
avoid making a mortgage on a troubled property. Most lenders will
ask the condo association to fill out a questionnaire that will help
the lender understand the property. The lender will be specifically
looking at:
" The percentage of owner-occupied
versus rental units. Most lenders are looking for at least 60% of
the complex to be owner-occupied.
" Whether or not the construction of the complex
is complete. Most lenders require that the complex be 90%
completed.
" Is there adequate insurance coverage, including
hazard insurance?
" Is there a reasonable operating budget for the
complex?
" Is the management competent?
" Are there adequate reserves for maintenance and
major repairs, such as roofing?
You should make sure that the seller
gives you the condo documents, articles of incorporation and the
bylaws of the homeowners' association. These should include the
notifications of any ongoing litigation and special assessments. You
will also want to attend an association meeting and read the minutes
for the past year. Make your approval by the condo association a
condition of the purchase.
No-documentation or Low-documentation
mortgages
No-documentation and
low-documentation mortgages are perfect for entrepreneurs or the
self-employed, recent immigrants and borrowers who cannot or do not
want to reveal information about their incomes. You will pay a
higher interest rate for a no-doc mortgage, often ½ a percentage
point higher.
To be approved for a no-doc mortgage,
you will be expected to put at least 20% to 35% down. You must have
excellent credit and verifiable assets for closing costs. For a
loc-doc mortgage, you must be self-employed for at least two years
and provide proof of sufficient assets and excellent
credit.
Some buyers secure no-doc or low-doc
mortgages and then when their financial situation improves, they
refinance to a lower-rate, full-documentation mortgage.
Low-doc and no-doc mortgages are
often called Alt-A mortgages. They are an alternative for a borrower
with good credit, or an "A" borrower. Consumers used to be ranked
with A, B, C or D loans according to their credit status.
Flawed credit problems
Most consumers are unaware of their
credit history and score. But if you have a credit score under 620,
you may have problems finding a mortgage. There are subprime
mortgages that are specially designed for borrowers with
less-than-perfect credit. They come with higher interest rates and
less favorable terms.
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