By Harold Copher, Jr., Willow Bend Mortgage
We’ve all been warned not to “try to fit a square peg into a round hole.” The funny thing is, some people do this for a living. Perhaps you are someone who occasionally has to try to fit a square peg into a round hole.
I’m sure some REALTORS work in nice, tidy, worlds, where people with great credit scores walk up pre-approved for loans larger than the homes they want, looking for homes you have in inventory. Not your world? Mine neither!
Sure, it happens, but not often enough to earn a living. So, what about the rest of the time? That’s when we have to get creative, and work with other professionals who are just as creative as ourselves.
I recall a comment from about 15 years ago to the effect that “if you can fog a mirror, you can get a mortgage.” The government was encouraging lenders to find ways to help more people enjoy the American dream of home ownership, and lenders were creatively rising to the challenge. Things changed in 2008. Markets had to adjust to a very different world. Loans became tougher, if not impossible, for people who didn’t fit a more “traditional” borrower profile.
At the time, that made sense, as the creative lending programs appeared to fail. Now, it is 2017, and while the tendency for stricter (than pre-2008) lending still exists, there are lenders who realize that some great creative lending ideas had been “thrown out with the bathwater.” Many home buyers did not transfer well into the box of rules and documentation imposed by FHA, VA, FNMA and FHLMC. These lenders have introduced lending programs that recognize some borrowers have the ability to repay their loans, even though traditional lending guidelines don’t necessarily recognize that ability. In other words, they can help a lot of those “square pegs” enjoy the American dream.
These “square peg” loans are more often based on the characteristics of the Borrower and/or Property that mitigate the risk assessed by standard underwriting guidelines. In other words, these lenders prioritize the reality of the situation over a more traditional formula.
Here are five loan types that can benefit from this creative thinking:
Non-Warrantable Condo Loans: Because the value of the condo depends on many more factors than a typical single-family home, the underwriter may look for lower qualifying ratios and possibly higher credit scores. There may also be slightly higher interest rates and down payments, but this square peg can fit into that round hole!
Asset Depletion Loans: We’ve all heard stories about someone with a ton of money and other assets who can’t get a loan for a home because they don’t have a “regular” income. Using a formula that is typically “total liquid assets divided by a number of months,” the underwriter can see that the borrower has plenty of ability to repay the loan, making it unnecessary for the borrower to liquidate those assets to purchase the home.
Bank Statement Qualifying: All too often, self-employed or 1099 income Buyers’ tax returns don’t represent sufficient household cash flow to fit “round peg” qualifying income requirements. Borrowers with good credit and sufficient liquid assets can use their gross deposits into business and personal bank accounts as gross qualifying income.
Professional Mortgage Loan Programs: Think of giving younger (or seasoned) professionals the opportunity to buy homes better suited to their long-term family needs. Qualifying borrowers will generally have high credit worthiness, demonstrate substantial increased earnings potential, and may have high student loan debt. Typical applicants are physicians, medical residents, nurses, dentists, podiatrists, optometrists, chiropractors, pharmacists, veterinarians, attorneys, CPA’s, CFP’s, engineers, architects, and doctorate degree holders. These loans will offer lower down payments, reduced (or no) mortgage insurance requirements and competitive rates.
Homes for Texas Heroes Loan Program: Who may qualify — teachers, police officers, correctional officers, firefighters, EMS personnel, and veterans. The benefits of this program include 30-year fixed rate loan terms, with down payment and closing cost assistance (up to 5 percent of the sales price). This Down Payment Assistance (DPA) is truly a gift – it does not have to be repaid.
What’s the good news? You sometimes can fit a square peg fit into a round hole! RL