If I Don't Qualify For a Home-Loan, What Are My Options?

If I Don't Qualify For a Home-Loan, What Are My Options?

There are a variety of options for hopeful, soon-to-be homeowners who may not have the best credit or the means to put a traditional 20% down-payment down on a home.

Many people have been told that if they do not have premium credit ratings and at least a 20% down-payment, they will never be able make their dream of homeownership come true. In today's world, that is simply not true. There are many other options in our market today for people to successfully purchase a home, despite not doing so by traditional means.

Conventional Loans are still a good option with borrowers looking to put less than a 20% down payment. Conventional loans with 5% or even 3% down payment are possible with good credit. They only differ from a normal 20% down purchase in that they have an added monthly mortgage insurance attached to the payment.

 

Non Traditional Loans / Other Options

The most common ways for people who may not have a top-of-the-line credit score or 20% down-payment to afford purchasing a home is through non traditional loans. While there are many claims out there from companies offering non traditional loans, some of them are better choices for you than others, depending on your situation.

Here are a few loan options for those that are in the market for a non traditional loan:

USDA Loans

The US Department of Agriculture has created a program that helps rural parts of the US develop their infrastructure by providing loans to local residents with 100% financing mortgages for low to moderate income families. These zero-down mortgages are also low on the mortgage insurance premium (MIP) payments as well. USDA loans run about 0.35% MIP rates versus 0.85% rates for other, traditional home loans. These MIP rates are usually built right into your monthly payments.

USDA Loans are available in "rural" areas; however, this may leave you thinking you don't qualify. What the USDA considers "rural" is any piece of land not in a major city. It's not just the farmlands like we may assume.

VA Loans

VA Loans are an excellent option for veterans. These home loans are 100% financed by the VA, so they can save the buyer thousands in mortgage insurance, and zero percent down is usually required as these are some of the cheapest mortgage options on the market today. There is usually just a one time funding fee that makes the program self-sustainable and this fee is set at 2.15%. Most lenders will need a 620 minimum credit score, but lower scores may be accepted by smaller lenders. The VA funding fee may be waived for certain veterans and their families. These exemptions include:

  • Veterans receiving compensation for service connected disabilities
  • Veterans receiving disability compensation if they did not receive retirement pay
  • Veterans who are identified as eligible to receive compensation after a pre-discharge exam or review
  • Veterans that are eligible to receive compensation but are still on active duty
  • Surviving spouses of veterans who are eligible for a VA loan

FHA Loans

An FHA Loan is ensured by the Federal Housing Association. Borrowers who qualify for FHA loans pay an upfront mortgage insurance amount, as well as a monthly mortgage insurance, which protects the lender (the FHA) from a loss if the higher-risk borrower defaults on their payments on the loan. This extra insurance means people with a credit score of 580 and above can qualify for a mortgage to get a home. To get an FHA loan, the buyer only has to put a 3.5% down-payment up rather than a traditional 20%. In some cases, closing costs may also be covered by the FHA as well, or at least some of the costs may be covered. There will also be an up-front premium to the buyer of a 1.75% fee of the entire loan.

Using a Co-signer

Another option is to possibly have someone such as a parent, family member, or close friend cosign on your mortgage for you. However, this is often not something a lot of people are willing to do, because if you default on the loan they are automatically held responsible for the rest of the payments on the outstanding balance. If you were to fail to make payments, the lender can come after cosigner to collect the unpaid money.

In situations where you may be sharing the home with family members, close friends, or roommates, cosigning may work for you. This is especially true if you are splitting the mortgage payments or taking turns paying on a loan if you are all using the home that was purchased. It's just one more alternative to allow you to get a loan for your home.

Potential reasons to obtain a cosigner are:

  • Lack of job stability for the primary borrower
  • Debt to income ratios, due to student loans
  • Not enough established credit

    Contact us today for more information on ways that you can purchase a home if you don't already qualify for a conventional loan.

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