When it comes to mortgage lending, strength is not necessarily in numbers.
Bringing more bodies to the deal will not instantly enhance your chances of obtaining a home loan. Although many states offer first-time homebuyer assistance and lenders are willing to stretch on low-downpayment loans for customers with strong employment credentials, credit repair and a little additional savings can work wonders.
The key place hopeful homebuyers with awful credit often error is recruiting an upstanding person with flawless credit to cosign your loan. If you are the primary borrower and owner-occupant, take some time to perform genuine damage control on your credit before you lure any partners or attempt to securing financing.
Maybe the biggest problem is a credit report that’s out of date or incorrect. It’s not a bad idea to check your credit every few years. If you are planning to buy a home in the next six months, do it now.
There’s a difference between a credit agency and a credit bureau. Bureaus are huge companies that collect data from banks, court records, department stores, etc. Agencies typically research what is in the bureaus and report the findings to the client.
If an incorrect item appears on a credit report, it’s up to the consumer to see that it is corrected. For example, if a courthouse clerk inadvertently punched a summary judgment onto your record, it’s your responsibility to see that it is corrected. Merely telling the agency is not enough; you should submit the explanation, or proof, in writing to the bureau.
If you finally have your credit looking better and still need an additional push, consider asking the seller to consider “seller financing” or “carrying the paper'” on the house. While most sellers prefer cash, some do not necessarily want to be cashed out. Sellers check credit, but not to the extent that banks do. Typically, a seller will ask to see your tax statements.
It’s often up to the buyer to start the discussions that result in seller financing. Sellers who need monthly income, perhaps a retiree, sometimes will consider helping to finance the house loan. Young families who are moving up need a lot of cash and are not good candidates for seller financing, but it never hurts to ask.
In addition, buyers and sellers also can save some closing fees. The buyer usually gets an interest rate from the seller that is slightly below the market rate.
Be as impressive as you can to a seller. It just might get you in the door.
Here are some other possibilities:
Offer a lease-option -You pay a small payment up front, usually non-refundable, to the seller for the option to buy the home on a specific date for a specific price. This method can be viewed as renting with a huge first and last month’s rent and a non-refundable damage deposit. It’s a benefit to the buyer because it gives him time (typically a year or two) to improve his job history or clear up credit questions. The method benefits the seller because the option money is not taxed to the seller until either the option is exercised or it expires. In the interim, the seller can depreciate the house.
Parents as partners – The method is popular with parents who want to help their children find an alternative to college dormitory living. By taking an ownership share, the parents get some tax benefits by renting their share of the house to their children. Because both are co-owners, both parties share in resale profits and the children establish credit.
Keep the seller on the title – You move in, pay as much down as you can, but keep the seller as co-owner to help qualify for a mortgage. Set up an agreement that gives you title on a specific date after you’ve paid off the seller or refinanced the deal with better credit.
Search for an assumable loan – Some Federal Housing Authority and Veterans Administration loans are easily assumable. However, if the seller is to be released of liability on the loan, then a complete loan application with credit check is required. Many homes now have existing adjustable-rate mortgages that are assumable. Typically, lenders are not as tough on assumption qualifications as they are when originating a new loan.