Mortgage and Portfolio Loan Guide

What are FHA Loans for Bad Credit?

A question that is frequently asked is: are there FHA loans for bad credit? The answer is yes. FHA loans are available with as low as 500 credit score on home purchase, refinance, and cash out refinance. These are federally insured mortgages with competitive rates and costs, and have less strict rules than conventional loans.

Below you’ll find everything you need to know about getting approved for an FHA loan even if you have poor credit.

Can I get an FHA loan with a 500 credit score?

Yes, it is possible to get approved for FHA loans for bad credit even if your middle credit score is 500. But if you are below 550 credit score, it can become a bit more challenging.

In fact, I would argue that many lenders flat out say that it’s not possible to get approved on an FHA loan if you’re below 580 credit. That’s absolutely not true.

With that said, not all FHA loans for bad credit are approved.

Here are some of the main factors that underwriters look at when considering an approval on a low credit FHA loan (and all FHA loans for that matter):

Key Points – FHA Loan Requirements

  • Credit score – the underwriter will use the middle credit score for a qualifying score. So if you’re 498, 552, and 509, the qualifying score will be 509. If you only have 2 credit scores, the lower of the 2 scores will be used.
  • Debt-to-income ratio – Typically you want to be below 43% debt-to-income ratio. This means if your monthly debt is 5,000 (including your mortgage) then your monthly income would need to be 11,700/month. However, there are some cases where FHA loans can get approved up to 57% debt-to-income ratio.
  • Equity (or down payment) – Loan-to-value RatioFHA loans for bad credit check mark
    • Home Purchase – On a home purchase, if your credit is below 580 credit score, the minimum down payment is 10%. If you’re above 580 credit score, the minimum down payment on FHA is 3.5%.
    • Refinance – On a refinance or cash out refinance, the maximum loan to value ratio is 85% (or 15% equity). So if the home value is $300,000, max loan amount would be $255,000
  • Payment history – If you have more than 1 payment that is over 30 days late on your mortgage in the last 12 months, the loan is probably not going to get approved on FHA. Same goes for other installment types of loans like car loans and student loans.
  • Recent credit events
    • Bankruptcy – For FHA you need 2 years to pass after chapter 7 bankruptcy, and 12 months on time payments to pass on a chapter 13 bankruptcy.
    • Foreclosure and short sale – 3 year waiting period on FHA from when the title was transferred out of your name until you can purchase or refinance a home.
  • Only allowed on primary residence. No vacation home or investment property allowed

Max Loan Limit

There are also loan limit maximums that vary from county to county all across the US. Check max FHA loan limit in your county here.

Automated Underwrite vs. Manual Underwrite

There are two different ways that FHA loans for bad credit are underwritten – Automated and Manually.

When a lender accepts your mortgage application, the data on your application is run through a desktop (digital) underwriting system. The desktop underwriting system weighs all factors of your application. That data includes credit scores, loan-to-value ratio, debt-to-income ratio and pretty much everything I described in the above “key points”.

The desktop underwriting system will determine eligibility with a response of Approve/Eligible, Refer/Eligible, or Refer with caution.

Findings

  • Approve/Eligible – means the loan will be underwritten based on normal FHA standards and current application appears to meet FHA guidelines.
  • Refer/Eligible – means the loan will be heavily scrutinized and current application may not meet FHA guidelines.
  • Refer with caution – means the loan does not meet FHA guidelines and application cannot proceed with FHA loan.

The goal is to get Approve/Eligible findings in order to proceed with loan process with as little friction as possible. You still need to provide supporting docs (income, assets, ID, etc.).

If you have Refer/Eligible findings the payment history requirements and debt-to-income ratio requirements are more strict. The loan needs to be manually underwritten to determine eligibility. Many lenders to not allow manual underwrite due to being labor intensive, but some lenders do.

More on manual underwrite mortgage here.

How to Get Approved for FHA Loans For Bad Credit

What if I don’t qualify for FHA Loans for bad credit?

If you have poor credit and you don’t meet the requirements for FHA, there are alternatives.fha loans for bad credit home 5

A portfolio loan may be your solution if you do not meet FHA standards.

Portfolio loans are mortgages that have non-traditional lending standards and have a more common sense approach to the approval process.

For example: let’s say you have a 516 credit score, and 40% equity in your home, but you missed 3 mortgage payments in the last 12 months due to a temporary layoff at work. That scenario wouldn’t work on an FHA loan because of the late payments, but with a portfolio loan you’d have a chance to get approved.

Portfolio loans are a temporary fix, for temporary circumstances. Typically, borrowers refinance out of their portfolio loan after 6-12 months of successful on time payments, and get back into something more traditional.

Key Points – Portfolio Loan Requirements

  • As low as 500 credit score
  • Available on primary residence, vacation home, and investment property
  • Available on home purchase, refinance, and cash out refinance
  • No PMI
  • Alternative documentation loans available for self-employed borrowers and real estate investors
  • Minimum down payment on home purchase is 10%
  • Maximum debt-to-income ratio is 50% with compensating factors
  • Recent bankruptcy, short-sale, foreclosure okay

More on portfolio loans here.

In Summary

An FHA loan is a great option to explore even if your credit is as low as 500. And if it turns out you don’t qualify for FHA, a portfolio loan may be a perfect alternative. If you’re not sure if you qualify whether you have good or bad credit please feel free to reach out.

I have been able to help many homeowners who have been told by other lenders that they don’t qualify.

portfolio loansI invite you to reach out.

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Adam Lesner | NMLS 198818

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona,

California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.

Buying a House After Bankruptcy

When buying a house after bankruptcy, there are several mortgage options including portfolio loans, conventional, FHA, and VA loans. They key is to know which mortgage option would apply to you best.

In today’s blog post I will cover everything you need to know about buying a house after bankruptcy including time frame you’ll need to wait for each type of loan available.

Can you buy a house after bankruptcy?

The short answer is: yes, it is absolutely possible get approved when buying a house after bankruptcy.

The long answer is: it depends on your income, credit, down payment (assets), and waiting period circumstances.

  • Income – You need to have an established/stable income and/or employment situation. If your income is unstable or inconsistent, it is going to create more of a challenge when looking to get approved for a mortgage.
  • Credit – It’s important to show that you have made an effort to re-establish your credit since having a major recent credit event like a bankruptcy. On time payment history, and no new collections would be the goal. Credit score requirements vary, and will be laid out below.
  • Assets – If you’re looking to buy a home immediately after bankruptcy discharge, you’ll likely need at least 15-20% down payment, plus 6 months of reserves. If you can wait, the down payment requirements are less aggressive. If you are at least 2 years out from bankruptcy, and have at least 580 credit, 3.5% down payment may be possible on FHA (10% down if below 580).
  • Waiting period – see below for waiting period on different bankruptcy types and loan types.

How long after bankruptcy can I buy a house?

The waiting period depends on what type of bankruptcy you went through, and what type of loan you’re applying for.

how long after bankruptcy can I buy a house

Chapter 7 Bankruptcy

  • Portfolio Loan – 1 day after bankruptcy was discharged. With portfolio loans your bankruptcy just has to be discharged. There is no lengthy waiting period you have to go through until you can buy a home. Expect higher rates and costs with portfolio loan. Portfolio loans are a short term solution for short term circumstances. Once you meet normal lending guidelines, you’d refinance out of the portfolio loan into convention or FHA
  • FHA and VA Loan – 2 year waiting period. When applying for an FHA loan, you’ll need to wait until the bankruptcy has been discharged before expecting to be approved. The discharge date will show on your credit report, and you can also provide your proof of bankruptcy discharge to your lender so they can further verify the discharge date.
  • Conventional Loan – 4 year waiting period. The lender will need to see 4 years have passed since the bankruptcy discharge date before the approval will be considered.

Chapter 13 Bankruptcy

  • Portfolio Loan – 2 years from original filing date. Must be discharged prior to application. The lender will likely want to see on time payment history on the chapter 13 bankruptcy.
  • FHA and VA Loan – 1 year from original filing date. Need to be able to show on time bankruptcy payments. If still in bankruptcy the court’s trustee will need to approve your request to obtain mortgage financing as well.
  • Conventional Loan – 2 years from discharge date or 4 years from dismissal date.

What if I had a home/mortgage included in bankruptcy?

Portfolio Loan – If mortgage was included in bankruptcy, you may be okay to purchase a new home once the bankruptcy is discharged.

Conventional Loan – If mortgage was included in bankruptcy and the home was surrendered (you left the home) a conventional loan is an option once the bankruptcy has been discharged for 4 years. This applies even if it took several years for the bank to foreclose on the property. Waiting period is still based on the bankruptcy discharge date, not the foreclosure date. This is a fannie mae guideline found here. Also, the snippet from the guideline is listed below.

Foreclosure and Bankruptcy on the Same Mortgage

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

 

FHA Loan – The waiting period will be based on the foreclosure date (which is 3 years) unfortunately.

Getting a Mortgage Post-Bankruptcy

It is extremely important that you prepare yourself to present your situation to your lender with complete clarity when getting a mortgage post-bankruptcy.

The story matters, especially if your bankruptcy has been discharged for less than 2 years. The lender is going to want to understand what circumstances led to the bankruptcy, and what has taken place to prevent that from happening again.

As you can see, as stated above, if you do not meet “traditional” lending guidelines, a portfolio loan may be the best solution when buying a house after bankruptcy and it was just recently discharged. A portfolio loan is an alternative type of mortgage that allows borrowers to get approved for a home loan based on more of a common sense approach. [more on portfolio loans here]

how long after bankruptcy can I buy a house

 

  • Low credit scores okay
  • Primary residence, vacation home, and investment property okay
  • Single family home, 2-4 unit, and condominium property type okay

The most important part about buying a house after bankruptcy

Working with a lender who is highly experienced with this type of scenario is perhaps the most important thing to keep in mind when buying a house after bankruptcy.

It is very common for a loan officer to see a bankruptcy on a credit report, and automatically state the borrower doesn’t qualify for “X” number of years without really digging deep into the situation.

Be sure to work with a lender who has a portfolio loan option in case the traditional mortgage route is out of the question.

If you are not sure if you qualify, please feel free to reach out.

I’ve been able to help many homeowners who have been told by other lenders that they don’t qualify.

portfolio loans

I invite you to reach out.

Get your questions answered.

 

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Jumbo Loans for Bad Credit

When seeking home financing with bad credit, your options may be limited. When seeking Jumbo Loans for bad credit, your options might even be more limited, but options are available.

Whether the low credit is due to recent foreclosure/bankruptcy/short sale or just recent collections, this post will tell you everything you need to know about how to get jumbo loans when you have bad credit.

What to Expect When Seeking Jumbo Loans for Bad Credit

In many cases, these loans can be done with as low as 500 credit score. These loans are typically referred to as “portfolio loans“.

When credit score is low, the lender is going to want to see strong compensating factors in order to give careful consideration on whether or not the loan can be funded.

Compensating factors that are helpful for approval if you do have bad credit:

  • Strong equity (or down payment). Although portfolio loans will allow 10% down payment (or 10% equity), typically that is if you have at least 660 credit and at least 2 years since major credit event like bankruptcy/foreclosure/short sale. The lower the credit, the higher the down payment. Example, if you have 500, it is likely you’ll need at least 25-30% down payment.
  • Strong liquid reserves. Lenders love to see that you have plenty of cash reserves or liquid reserves (401K, IRA, etc.) after it’s all said and done. It makes them feel comfortable knowing that if you were to fall on hard times, you have the means to still cover your mortgage and living expenses. Typically showing 6 months worth of reserves is a good sign.
  • Strong history with employer. Stability and consistency of income/employment is important. If you have been with your employer for 3 years, that factor will strengthen the overall profile. That doesn’t mean you’ll be declined if you don’t have 3 years on the job, but it does help if you do.jumbo loan with low credit
  • Low debt-to-income ratio. If you have bad credit, but a low debt to income ratio, it’s much more simple to demonstrate your ability to repay the mortgage. When calculating debt to income ratio, the lender will factor in your new mortgage payment (including taxes/insurance/HOA dues), and all other liabilities that are shown on your credit report. In addition, they will want to include any other real estate owned and taxes/insurance/HOA dues tied to those properties. The lender will take your monthly debt, divided by your monthly income, and that equals your debt-to-income ratio. Example, if your monthly debt is $5,000 and your monthly income is $15,000, your debt-to-income ratio is 33%. Some lenders will go as high as 55% (with strong compensating factors), but typically they are looking to see 45% or lower.
  • Low payment shock. Your current housing expense will be carefully considered when factoring in your new potential housing expense. It helps to show housing payment history, and not much of an increase when comparing present housing expense with new potential housing expense (unless it is a cash out refinance, and other monthly obligations are being paid off).

Be ready to give a thoughtful explanation as to why your credit is bad.

Portfolio loans are considered case by case, and it helps if you can clearly tell the story of what happened. [more on portfolio loans here]

4 Things You’ll Need To Do When Getting Jumbo Loans For Bad Credit

  1. Be prepared to tell your story. When getting a portfolio loan, the story matters. Take the time to have your facts straight and put it in writing. Help the lender understand exactly what the circumstances were which led to the credit challenge. Explain why these circumstances are isolated, and won’t happen again.
  2. Have all of your documents in order. Just like any other mortgage, when getting a jumbo loan with bad credit, you’ll need to document everything (income/credit/assets). Do not try to cut corners, or ask for exceptions on having all necessary docs. The lender is already taking a risk with lending on low credit. The goal is to minimize the layers of risk involved.
  3. Expect higher rates. When getting a portfolio loan you’re dealing with a different mortgage market than the conventional home financing world. These portfolio loans are designed to be a short term fix for short term circumstances. Once your credit meets normal lending guidelines, you’ll be refinancing into a traditional loan.
  4. Be patient. The underwriting process may take longer than traditional financing in some cases. People are surprised by this because they figure “outside-the-box” lending = quick-and-easy. That’s just not the case. Portfolio loans are carefully underwritten, and fully documented.

Alternative Documentation | Business Owners | Self-Employed

If you are a business owner who shows low net income on tax returns, a bank statement loan may be the best option for you to show your ability to repay the mortgage.

These loans allow self-employed individuals to use their personal or business bank statements to calculate income, and can be done with some low credit scenarios.

When using personal bank statements to qualify you’ll provide 12 months bank statements. Deposits will be averaged over that time frame, and unusual/unverifiable deposits will be excluded from income average.

When using business bank statements to qualify you’ll provide 24 months bank statements. You can only use business bank statements if you are 100% owner of the business. The deposits will be reviewed/averaged, and a “expense factor” will be applied. Typically, the minimum expense factor is 35%. So if you show 100K income, the usable amount is 65K. Your CPA will need to confirm what your expense factor should be.

[more on bank statement loans here]

Keep In Mind

  • Minimum down payment is 10%. The lower the credit, the higher the down payment.
  • Minimum credit score 500
  • Recent bankruptcy, foreclosure, short sale is okay
  • Typically need to show at least 6 months reserves
  • Having strong compensating factors help your likelihood of approval
  • Available on home purchase and refinance
  • Cash out refinance also available on jumbo loans for bad credit

In Summary

Having bad credit does not mean that you have to rent a home while you wait on getting your credit up to normal lending standards. A portfolio loan may be your perfect solution when seeking  jumbo loans for bad credit.

I invite you to reach out.

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

What is Manual Underwriting Mortgage?

If you have been told you do not qualify for an FHA or VA loan, but were not given a reason, a manual underwriting mortgage may be your ticket to getting approved.

What is a manual underwriting mortgage?

Traditional mortgage loans have two ways of getting approved: automated underwriting and manual underwriting. When the loan is manually underwritten, the scenario is evaluated with a more fine tooth comb than automated underwrite to ensure the borrower meets required guidelines. A manual underwritten mortgage is often a deal saver if the loan doesn’t receive an automated approval.

Automated approval vs. Manual Approval

what is manual underwriting 2

Mortgage lenders use a “desktop underwriting” system where the mortgage application is imported and then sent to get “automated findings”. Based on the application data (income, credit, assets, property) the desktop underwriter (automated approval) with give:

  • Approve/Eligible
  • Approve/Ineligible
  • Refer/Eligible
  • Refer with caution

Approve/Eligible means based on the application submitted, the borrower appears to meet minimum guidelines for the mortgage they are applying for. If approve/eligible findings are received there is high confidence the loan will be approved assuming the application is correct and all income/credit/asset/property can be verified per requirements on the automated findings. Lenders are not required to share the findings.

Approve/Ineligible findings in my opinion are most commonly found when there are not enough assets for funds to close (down payment, costs, escrows, and reserves) or the length of time employed or housing history is incomplete.

Refer/Eligible means the borrower appears to meet minimum guidelines, but the loan needs to be manually underwritten in order to confirm that is the case.

Refer with caution means there appears to be significant risks with the loan, and the applicant most likely does not meet minimum underwriting standards for the loan they are applying for.

When referring to a “manually underwriting mortgage” the findings with the automated underwrite would be Refer/Eligible.

The problem with manual underwriting mortgage:

Many lenders do not do manual underwriting.

Why?

Because like I mentioned above, with a manual underwrite the loan needs to be underwritten with more of a fine tooth comb which means it slows underwriters down. The guidelines on manually underwritten mortgages are more strict than automated underwritten loans as well.

Many lenders tend to chose a path of least resistance, and only allow automated underwriting to be done. This leaves many borrowers left with a denial letter and no direction as to what to do.

The good news is that there are plenty of lenders who do offer manually underwritten mortgages.

If you have been told that you do not qualify for a mortgage, ask specifically: “What is causing me to not be approved?”

If you can clearly understand the reason for denial, you know what questions to ask if you end up pursuing approval with a different lender.

Perhaps the reason for denial is that your application received Refer/Eligible findings, and the lender you’re working with just doesn’t allow a manual underwrite to be completed.

Manual Downgrade

In some cases, even if the loan received Approve/Eligible findings, the loan has to be “downgraded” and be manually underwritten.

Here is the most comprehensive available list for manual downgrade scenarios:

The Mortgagee (Lender)  must downgrade and manually underwrite any Mortgage that received an Accept recommendation if: 

  • the mortgage file contains information or documentation that cannot be entered into or evaluated by TOTAL Mortgage Scorecard;
  • additional information, not considered in the Automated Underwriting System (AUS) recommendation affects the overall insurability of the Mortgage;
  • the Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts;
  • the date of the Borrower’s bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of case number assignment;
  • the case number assignment date is within three years of the date of the transfer of title through a Pre-Foreclosure Sale (Short Sale);
  • case number assignment date is within three years of the date of the transfer of title through a foreclosure sale;
  • the case number assignment date is within three years of the date of the transfer of title through a Deed-in-Lieu (DIL) of foreclosure;
  • the Mortgage Payment history, for any Mortgage trade line reported on the credit report used to score the application, requires a downgrade as defined in Handbook 4000.1 II.A.4.b.iii (K) – Housing Obligations/Mortgage Payment History;
  • the Borrower has undisclosed mortgage debt that requires a downgrade; or
  • business income shows a greater than 20 percent decline over the analysis period.

 
If a determination is made that the Mortgage must be downgraded to manual underwriting, the Mortgagee must cease its use of the AUS and comply with all requirements for manual underwriting when underwriting a downgraded Mortgage.
 
For additional information see Handbook 4000.1 II.A.4.a.v.–vi. available here

What to expect if your loan is being manually underwritten?

Take a breath and prepare yourself. You’re going to need to be patient because your loan process is going to be slightly more complicated than an automated underwrite.

You’ll need to provide more documentation, and you’ll likely need to provide a few more letters of explanation to your lender.

The bit of extra work that it takes to get a loan approved with a manual underwrite is worth it. The approval is worth the work. The alternative is not doing the work, no approval, and no loan.

What if you’ve tried getting manual underwriting mortgage, and were still denied?

A portfolio loan may be your solution.

what is manual underwriting 3

Portfolio loans are mortgage options that work outside the “normal” lending guidelines. These loans are perfect for borrowers who don’t quite fit within the traditional mortgage requirements.

Examples of when portfolio loans are done:

Ending thoughts…

Just because one lender tells you that you do not qualify for a mortgage, that does not necessarily mean there aren’t any options for you.

Whether you get a manually underwritten mortgage or a portfolio loan, the extra effort is probably worth it. At the very least, you’ll have a 2nd opinion, and have clear understanding of what you do need to accomplish in order to qualify in the future.

 


 

Invite you to reach out to me.

Get your questions answered.

 

 

house loans for bad credit

 

Cash Out Refinance with Bad Credit

Tapping into your home’s equity to do a cash out refinance with bad credit may be a great option if you’re looking to consolidate high interest debt or make improvements to your home.

Here you’ll find everything you need to know about how to get approved for such a loan and what to expect when refinancing your home with a cash out or debt consolidation mortgage.

What is a cash out refinance?

When you own a home, typical market conditions provide natural appreciation of your property. This means over time the value of your home increases. As the value increases, you gain more equity in your home.

With a cash out refinance, you can tap into that equity to accomplish your financial or home improvement goals. When you refinance you pay off the existing mortgage loan and get extra cash out to cover other debt you’d like to pay off or make home improvements.

Why would a homeowner do a cash out refinance?

A cash out refinance is done for many reasons. Here are some of the most common scenarios:

  • Consolidate high interest credit card debt
  • Make improvements to the home
  • Pay for children’s college
  • Pay off medical bills or other collections
  • Increase cash reserves for unexpected emergency

Cash out refinancing is available for perfect, good, fair, and bad credit. The main factors that are considered are equity (amount borrowed vs. home value) and income (ability to repay).

A cash out refinance can be done on a primary residence, second home (vacation home), and investment property. The max loan to value ratio will depend on property type, occupancy, and credit score.

Example: if you have perfect credit, and it’s a 2 unit investment property, you may be limited to 70% loan to value. If it’s a primary residence and you have 620 credit score you may be limited to 85% loan to value.

Cash out refinance loans are available for credit as low as 520. Must meet equity and income requirements.

What are the benefits of doing a cash out refinance on your home?

When you consolidate your high interest credit card debt with a cash out refinance there are several incredible things that happen. Paying down your credit cards typically results in higher credit scores.

The credit bureaus (experian, equifax, transunion) score you based on the amount available in comparison to how much you have used. The lower amount you have used compared to the amount of credit available to you will only help your scores in a positive way.debt consolidation mortgage

The interest rates on credit card debt are typically much higher than mortgage rates. AND the interest on credit card debt is NOT tax deductible. The interest you pay on your mortgage IS tax-deductible. Many home owners’ largest tax deduction is their mortgage interest.

By rolling your credit card debt into your mortgage you not only decrease you overall monthly payments, but you also set yourself up for success in terms of tax deductions in many cases.

Take a look at your most recent credit card statement. How much of your payment went toward principal? Not much right?

The tricky thing about credit cards is the minimum payment is manageable, but the minimum payment never gets you anywhere in terms of paying down the principal balance.

By consolidating it into the mortgage, you create a manageable plan to pay off your debt.

Cash out refinance to complete home improvements

Using the equity in your home to improve your home will likely increase the fair market value of your home. Keep in mind, it’s not a dollar for dollar trade-off. Just because you put $20K into new floors and appliances, that doesn’t necessarily increase the value of your home by $20K.refinance mortgage bad credit

Every market is different and some upgrades provide more value increase than others.

The biggest benefit of using your home’s equity to make improvements is it allows you to do the things that you have always intended on doing, but have been unable to save for because life gets in the way.

Improvements like:

  • A new deck/porch
  • Replacing carpet
  • New appliances
  • Roof
  • Improved landscaping
  • and more

What if I have bad credit, can I still do a cash out refinance?

There are several different mortgage options available when looking at getting approved for a cash out refinance. For good credit a conventional loan will probably be the best route to take. For fair to poor credit, an FHA loan will probably be your best route.

If you are a veteran of the US armed forces, and eligible for VA financing, you may be able to do a cash out refinance up to 90% of your home value even if you have credit below 580.

If you do not meet FHA or VA guidelines because you have had a more recent bankruptcy, foreclosure, or short-sale; a portfolio loan will likely be your best option.

Portfolio loans are for scenarios that are more unique and require a “common sense” approval approach. Portfolio loans are less strict than traditional financing, and are intended to be a short-term fix for short-term circumstances. Once you meet traditional lending guidelines you’ll want to refinance out of the portfolio loan.

More on portfolio loans here.

  • Low Credit scores okay
  • Primary residence, vacation home, and investment property
  • Single family home, 2-4 unit, condominium, manufactured homes allowed
  • Recent bankruptcy, foreclosure, short-sale considered

In Summary

There are many benefits to doing a cash out refinance. If you are not sure if you qualify for a cash out refinance whether you have good or bad credit please feel free to reach out.

I’ve been able to help many homeowner’s who have been told by other lenders that they don’t qualify.

I invite you to reach out. 

 

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Adam Lesner | NMLS 198818

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona,

California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.

Do I qualify for a home loan?

Here are all the answers to the question “Do I qualify for a home loan?” The answer to that question is really a four part question regarding you income, credit, assets, and property.

The real questions to be asking are:

  • Does my income qualify me for a mortgage?
  • Does my credit meet mortgage requirements?
  • Are my assets enough to cover the required down payment, closing costs, escrows, and reserves?
  • Does the property I am looking to buy meet lender guidelines and requirements?

In this post I will cover the answers to all of those questions and more. You’ll know exactly what you’re up against when seeking mortgage approval.

Does my income qualify for a home loan?

When applying for a mortgage you have to think like an underwriter.

Regarding income, here is how an underwriter thinks: “does this potential borrower show consistency and stability with their income and employment history?”

In the mortgage world consistency is best demonstrated by providing proof of income for the most recent two year history. If your income is the same or more this year than it was last year, and the year before – that means your income is consistently increasing.

If your income is less last year than it was the year before, that means your income is “declining”. Declining income demonstrates instability, and could potentially cause an issue with approval unless there is a legitimate reason for the declining income.

If showing declining income it helps to show that you’re back on your feet by showing your year to date income is back on track to earn what you did in previous years.

W-2 employee of a company your income will be based on the gross amount on your pay stub. When you are a salary employee it’s very simple.do I qualify for a home loan income

If you are an hourly employee your income is: your wage X average hours per week X 52 / 12.

If you recently received a raise, your income will be based on your most recent raise.

For incentive pay like commission, bonus, overtime – you will need a 2 year history of receiving that income in order to be able to demonstrate consistency/stability.

What if you are self-employed?

See full article on how your income is considered.

The way the lender decides if you’re eligible for a loan is by calculating your income and measuring that against your monthly liabilities (including all items shown on credit, alimony/child support, and all real estate obligations). The underwriter divides your debt into your income (or debt to income ratio).

So if your debt is 4,000/month and your income is 8,000/month, you have a 50% debt-to-income (DTI) ratio.

Most lenders to not like to see debt-to-income ratio above 45%, but in some cases 50% DTI is accepted with strong compensating factors (high asset reserves, low loan to value ratio, etc.).

Does my credit meet mortgage requirements?

Credit = credibility of previous payment history.

You have 1 score from each bureau:

  • Transunion
  • Equifax
  • Experian

For a standard conventional loan, 620 middle credit score is needed. [For other loan types, there are cases where you can go as low as 500 credit score. Just ask.

So if you have scores of 650, 675, 690 – the 675 score is what is used.

Important Note: The scores that the credit bureaus report to mortgage lenders are different than what is reported to consumers who pull consumer reports. The scores that lenders see are almost always lower than what you might pull on CreditKarma.com.

CreditKarma.com is still a great site, and gives you something to start with when trying to get an idea of where you stand.

Aside from actual credit score, here are the things lenders look for on your credit report:

  • On time payment history (or lack thereof – aka late payments)
  • Length of credit established
  • Derogatory marks like collections, charge-offs, judgments, tax liens
  • Major credit events like bankruptcy, foreclosure, short sale

Payment History

It’s crucial to be able to show minimal late payments in the most recent 24 months, especially on housing payment history. Most traditional loans only allow one 30 day late payment in the last 12 months.

But there are alternative loan options for unique credit circumstances.

Length of Established Credit

In many cases there will be a need to show at least 12 months of established credit. However, there are exceptions.

If you have 10-20% down payment, >2 years on the job, and can prove rent history, it may be possible to get approved with less than 12 months credit history.

No Credit Score | No credit Historydo i qualify for a home loan credit

Some people just like to pay cash. Plain and simple. I get it.

For those who have no credit established, and no credit score, you may still qualify for a mortgage by using non-traditional credit approach.

A non-traditional credit report would consist of 3 accounts you pay toward that do NOT show on your traditional credit report.

Examples of non-traditional credit:

  • Rental payments
  • Utility payments (gas, electric, water, landline, home phone, cable)
  • Netflix/HULU
  • Child care
  • School tuition
  • Proof of 12 months savings
  • Gym membership
  • And more

If you have a legitimate (and consistent) 12 month payment history on an account there is a chance it may be considered by the lender in the overall decision to lend.

Derogatory Marks

For minor collections, there are cases where they do not need to be paid off prior to closing on your home loan. Medical collections are given some flexibility as well.

But if you have more than $1,000 in outstanding collections, they will most likely need to be paid prior to closing.

Judgments and tax liens must be paid prior to closing. The lender does not want to have to deal with those obligations potentially becoming a lien on the property/collateral.

These derogatory marks do not necessarily need to be removed from the credit report. Most of the time, the lender just wants legitimate proof or paper trail to confirm the obligation has been paid/satisfied/settled.

Disputed Accounts

When you dispute an account on your credit report because you disagree with the way it is being reported, the credit bureaus immediately disregard that account when calculating your scores.

The result of disputing an account is the credit scores go up. This is because the negative account that is being disputed is not being included in the overall scoring calculation.

For that reason, lenders will typically not allow a loan to proceed until the dispute has been removed, and new credit has been pulled. The logic is: if there is a disputed account, the credit scores are artificially high.

Major Credit Events

On most mortgage loans there is a waiting period between when a person has gone through a major credit event, and when they are eligible for new home financing. Below is a basic summary of what to typically expect as far as waiting periods are concerned. [there are portfolio loans where no waiting period is required]

  • Bankruptcy – Chapter 7
    • FHA – 2 year waiting period
    • Conventional – 4 year waiting period
    • VA – 2 year waiting period
    • USDA – 3 year waiting period
    • Portfolio Loan – No waiting period with 20% down payment if home was included in foreclosure.
  • Bankruptcy – Chapter 13
    • FHA – Must have 12 months on time payments and permission from trustee to enter new mortgage. Must be manually underwritten if less than 2 years.
    • Conventional – 2 year waiting period
    • VA – 1 year waiting period
    • USDA – 1 year waiting period
    • Portfolio Loan – No waiting period with 20% down payment
  • Foreclosure
    • FHA – 3 year waiting period
    • Conventional – 7 year waiting period (Unless property that foreclosed was included in bankruptcy. If home was included in BK, waiting period is based on bankruptcy discharge date)
    • VA – 3 year waiting period
    • USDA – 3 year waiting period
    • Portfolio Loan – No waiting period with 20% down payment
  • Short Sale or Deed-in-lieu
    • FHA – 3 year waiting period
    • Conventional – 4 year waiting period
    • VA – 3 year waiting period
    • USDA – 3 year waiting period
    • Portfolio Loan – No waiting period with 20% down payment

Keep in mind, guidelines change constantly. It would appear a portfolio loan is a good option if you’re back on your feet and don’t yet meet traditional waiting period requirements. More on portfolio loans here.

Do my assets meet home loan requirements?

When evaluating assets the underwriter is reviewing available funds for:

  • Down payment – The amount that you’re coming out of pocket to secure the home.
  • Closing costs – The fees associated with acquiring the home (appraisal, origination, title, closing, recording, etc.)
  • Escrows/prepaids (for taxes and insurance) – The amount set aside to account for taxes and insurance on the property
  • Reserves – The amount of left over available funds

The funds used to qualify must be “seasoned” in your account for 60 days to be eligible funds. Any large deposits that are not seasoned must be explained and sourced. Cash deposits are unacceptable because the source cannot be verified/confirmed.

If you have a property that you are simultaneously selling during the process of buying the new home, the proceeds of the sale of that previous home do not need to be seasoned. You will need to provide proof of sale of the home (purchase and sale agreement) as well as the closing statement prior to closing on the new home.

Reservesdo i qualify for a home loan assets

The logic of reviewing reserves is: if the borrower should unexpectedly fall on hard times, there is enough set aside to cover the mortgage payment for X number of months.

Showing adequate reserves helps strengthen the overall file.

Reserves can be from your traditional bank account, brokerage account, retirement account, etc. You cannot use a non-borrower’s account to show reserves.

Gift Funds 

For most loan types gift funds from family are acceptable. There are scenarios where a non-family member can gift the funds, but every lender is going to have a different interpretation of who is acceptable. For best results, just ask.

Non-Liquid Assets

Cars, RV’s, heavy equipment, beanie babies… are not liquid assets.

Vehicles and other items that can be easily valued, can be considered if sold and properly documented.

If you sell a car in order to qualify for a mortgage be sure to have kelly blue book value on hand, bill of sale, and copy of the check you received when you sold the vehicle. Having a full paper trail helps tremendously.

 

Does the property being financed meet lending guidelines?

There are an infinite number of reasons the property might not meet lender requirements.

I am going to cover some of the most common reasons the property can be the cause of denial with the lender.

Non-Warrantable Condo

When buying a condominium, not only does the borrower’s finances get evaluated, but the homeowners association is also closely reviewed.

The lender will order a “condo questionnaire” in order to evaluate the health of the association.

They’ll look for things like: completion status, investor concentration, pending litigation, and so much more.

More on non-warrantable condos here.

Repairs Neededdo i qualify for a home loan house

If the property is in disrepair, the lender will require completion of repairs prior to closing in most cases. Repairs needed will be determined based on appraiser’s comments in the appraisal report.

The repairs need to be completed by the seller, and a final inspection will be needed prior to closing to confirm completion.

If your repairs are fairly minor, there are many lenders that will allow a “repair escrow”.

A repair escrow is where funds are set aside at closing to cover the cost of the repairs needed. Then the loan closes, and repairs are done after closing. A final inspection is completed when ready.

Typically this only allowed when repairs are no more than $5,000. With a repair escrow, 150% of the estimated repair costs are collected in case of unexpected cost overages.

Example: if the repairs needed are estimated to be $3,000, the actual amount collected for the repair escrow will be $4,500.

If the excess funds aren’t used, the difference will be refunded to the borrower or applied toward the principal balance.

For properties in need of major repair. There are renovation mortgages available on both FHA and conventional.

Unique Property Type

One of the most crucial parts of the appraisal report has to do with the appraiser being able to find recently sold homes that are comparable in size/condition/use that have sold within a reasonable distance.

If there are unique features to the property, the appraiser may have a challenge that cannot be resolved due to market conditions.

Even if there are comparables, some lenders simply do not allow unique property types.

Unique features that could be a challenge:

  • Berm homes
  • Properties that are not suitable for year round occupancy regardless of location
  • Agricultural zoned property
  • Condo hotels
  • More than 20 acres
  • Hobby farms
  • Leaseholds
  • Rustic log cabins
  • Working farms, ranches, or orchards

For unique property type financing, a portfolio loan may be a solution.

In Summary

There are four major pieces of the scenario to consider when asking the question “do I qualify for a home loan”?

Those pieces are: income, credit, assets, and property.

If any of your questions were left unanswered I strongly encourage you to reach out to me below and ask.

If I cannot help, I should be able to point you in the right direction at the very least.

self employed home loans

 

 

How to Buy a House Without Lying to Your Mortgage Lender

How to Buy a House Without Lying to Your Lender | Mortgage Tips

How do you actually close on a house without trying to sneak something by the big bad lender?

For some reason there’s this skeleton in everybody’s closet that they don’t want the lender to find out about. They think that if the lender finds out everything is going to fall apart, and they’re right.

But, there are certain things that need to be talked about or resolved, before closing on a house. Here’s the thing, one thing you have to remember is that if there’s an issue, we are going to find out.
There’s no sweeping stuff under the rug.

The way that you buy a house without lying to your lender is by telling the truth from day one.

By doing that (being completely transparent about all of your financial circumstances) it gives the lender the opportunity to work on a solution. Otherwise what happens is the lender finds out some other way.

By waiting, and not telling your lender you set yourself up for failure.

The realtor is set up for failure.
We’re all set up to then be scrambling to try to find a solution the day before closing.

Then the stress level goes through the roof. “what’s going to happen? Am I going to be homeless?”

When really this stuff could have been resolved a month ago (most of the time), and then the stress level isn’t as high.

Let’s just put all the pieces of the puzzle together at the same time, at the beginning, as soon as possible. If you know that there are any issues let’s get it in and figure it out.

We’re all about solutions. Let’s figure it out.

Solutions.
Resolutions.
Resolve.
Opportunity. 🙂

I don’t see an issue as “end of the world”. I see an issue as “hey, we’re going to learn something now, we’re going to figure something out.”