Getting an Unconventional Mortgage – How to Make Your Situation Work

Getting a mortgage is already hard, but when you add low credit, self employment, no income documentation, or no down payment in hand, it gets harder. Can the house of your dreams ever become a reality? If you do things correctly, then yes, it certainly can. There are steps you can take no matter your financial situation or what other hardship has befallen you. Sometimes there are mortgage programs designed specifically for people with your issue, so that you and others like you can get keys in their hand to their new home just like anyone else. Lenders issued $34 billion of unconventional mortgage loans in the first three quarters of 2018, so it is absolutely possible to do.
 
Let’s discuss the different ways you can bypass obstacles in your financial or employment situation to getting the best mortgage for you.
 
Low Credit or No Credit
Sometimes life gets in the way and money is tight. It can happen to anyone. A credit score between 600 and 700 will typically get you a traditional loan with little to no issues, and likely with a “big name” lender. If you have paid all your bills on time, kept your debt to a reasonable limit, and had no major bankruptcies, you should have a decent credit score. Anything less, and you’ll have to get creative with where you get your mortgage loan! There are companies that work exclusively with people who have low or no credit. If you’ve had a bankruptcy in the last few years, you might need to contact a private mortgage lender, as well. A mortgage broker can put you in touch with these companies and lenders. 
 
You may also be able to offset the damage done by low or no credit by being able to offer a higher down payment than you otherwise would. Typically you can get a mortgage loan with only around a 5% down payment, but in this case, aim for closer to 20-25% down payment. It is a much larger amount to save for that might take longer, but it can be well worth the trouble. It gives you more leverage when it comes to negotiating a mortgage rate. 
 
However, be prepared to pay more in fees. Lenders can charge up to 1% of the entire loan amount for processing an application for a loan with bad credit. You might pay more in mortgage rates, as well. If you want to access a lower mortgage rate by renewing or refinancing in the future, be sure to pay all of your mortgage payments on time and to do what you can to boost your credit score. 
 
No Pay Stubs or Proof of Income 
It can be tough to get a loan without proof of your income or employment. Lenders do need proof that you can repay them, after all! Your loan officer might request pay stubs, W-2 forms, bank statements, or tax returns to verify that you have a steady income.
 
This sounds par-for-the-course, but it might not work for you. Self employed people and those who live off of commission or tips may not have consistent income that is easy to prove. Even if you earn enough to repay your loan, if you can’t prove that, it can be hard to get one. 
 
However, you’re in luck. There are ways around this. In rare cases, you may be able to get a “No Documentation” Mortgage. These are not often given, but can be found. In this case, your loan is based on credit ratings, liquid assets, and other assets that can be used as collateral in case of default. If this doesn’t work out, you can consider a Stated Income Loan. This allows an applicant to state how much they make without proof as long as they can also offer up excellent credit of at least 720 and liquid assets on hand that total all living expenses plus the cost of the mortgage for at least six months. 
 
That doesn’t work either? Well, you can also go the route of a co-signer. In some cases, this allows unqualified buyers to secure the funds for a home. The co-sign documentation can take the place of traditional documentation. 
 
No Down Payment
Now there are other avenues for someone with no down payment to take. The alternative to the extremely rare zero down mortgage loan is called a flex-down mortgage loan. That means you’re able to use a line of credit or a personal loan towards your down payment. Not every lender offers this, but you can find it. You must also have a good credit score to qualify for this. 
 
If you have family that is willing to assist you with the down payment, you can cover the down payment on your home with that gift from them. There is a specific process when you do this, though, so be sure to ask your broker or lender. 
 
If neither of these options work for you, there are other things out there that will assist you in getting a home with low or no down payments. Take on private mortgage insurance – typically you’ll be required to do this without a 20% down payment, but having it will set your lenders a little more at ease. You can also borrow against your life insurance policy for your down payment. Other financial avenues to consider include pensions or other retirement accounts. 
 
Self Employment / Freelancer
Being self employed comes with a lot of perks, but ease in getting a mortgage loan is certainly not one of them. Getting a mortgage as a self employed person can be challenging, but is not impossible. Unfortunately, as a self employed person, you present a higher risk to lenders. Your best bet is to offset this risk with other positive assets and attributes of your finances. 
 
Like those with no proof of income or no pay stubs, letters from clients may help you here. You may also qualify for a newer mortgage program called an “alternate documentation loan”, or you may qualify for a “bank statement” loan. There is a difference! With an alternate documentation loan, the income is still verified, but in different ways than normal. You may, for example, be required to show business bank statements instead of personal bank statements. A bank statement loan is a little more self explanatory. 
 
When self employed, the interest rate you pay on a mortgage may be a little higher. Also, the process will be the same (get a rate quote, fill out an application, sign paperwork, and produce documents on demand), but you may be required to offer a little more in the way of paperwork signatures and documentation. Most lenders ask for a minimum two year record of income/earnings. If you can offer this, you’re on your way to being a self employed home owner. 
 
Other small things you can do to offset your risk to your lender:  Keep a good credit score, keep your taxes up to date, and pay down your business debt. 
 
Student Loans
Did you know that whether or not you have student loans can impact your ability to get a mortgage? It’s true. Think of it from the lender’s point of view – can most people take on two huge amounts of debt at once? Probably not easily! There are other factors besides your front to back end ratios that are important when seeking a loan while also carrying student loans. The size of your down payment makes a big difference. If you can save a higher down payment, your student loans are less likely to affect your ability to get a mortgage. How much money you make is also another important factor. To your benefit, if you have student loans, you likely have a degree. If you have a degree, you qualify for higher paying jobs. How long you’ve had that job plays a factor, as well. Which leads us to… 
 
A New Job
If you have a brand new job, or one you’ve been at for less than six months, you may have a few more obstacles than most when it comes to obtaining a mortgage loan. Unfortunately, when lenders run your credit history, they sometimes won’t accept your information unless you have at least two years of employment history with the same employer. You may be able to bypass this if you have spent at least two years in the same industry, if not with the same employer. If you’ve just graduated, you may not be able to buy a home until you’ve had a job for a few years. There are other ways around this obstacle, though! If your job switches industries from a less than stable field to a more stable field, and you do not have a history of job hopping, you may be able to appeal to your underwriter. 
 
No matter what obstacle has been placed in front of you, there is a way around it and a path to home ownership and mortgage loan success! 

How to Keep Your Closing Costs Low

As mortgage rates rise, so too do closing costs. Also against the home purchasing public is that new loan regulations and financial safeguards have caused bank costs to rise when they fund a mortgage loan, and the banks have understandably passed those costs on to the consumers to cover. In fact, mortgage closing costs rose 1.6% last year compared to what they were the year prior, and on average, home buyers paid $4,876 for closing costs. It can seem like there are a million fees you are responsible for! Besides, you did just save up a ton of money for a down payment. Now you have to worry about higher closing costs than you would have been asked to pay ten years ago!  
 
But did you know that you can take precautions to keep your closing costs low? It’s true. There are ways to limit what you are charged during closing time, and if you want to have the lowest closing costs available to you, regardless of the type of mortgage you get, you can follow this list below. You can get a great closing cost rate too! 
 
Before we get into what you can do to lower your closing costs, lets discuss what they are and how they work. All mortgage loans require that someone pay for the closing costs. Sometimes you’ll get lucky and the seller of your new home will pay them. Every now and then you can find a lender who will cover them, in a zero closing cost mortgage, but this is even more rare. 
 
There are two general types of closing costs. First, you have mortgage lender closing costs, which may include origination fees, discount points, underwriting fees, document preparation fees, title fees, attorney fees, prorated loan interest, lender fees, application fees, assumption fees, pre-paid interest, or title search fees. You may also pay a mortgage insurance application fee if your down payment is less than 20% of your loan total amount, as well as some upfront mortgage insurance costs in the same case.
 
The other type of closing costs are third party closing costs. These are paid to companies other than your lender, and they include appraisal costs, credit report fees, tax service fees, property taxes, annual assessments to your HOA (if any), home inspections, flood certifications, escrow fees, and title insurance. 
 
Lenders are required by law to provide you with a list of closing costs you are responsible for paying within three days of receiving your application for a mortgage loan. This list will be only an estimate of what you’ll pay, but it will give you a better idea of what to expect. 
 
Now that we’ve gone over what closing costs are and what they consist of, lets talk about how to keep them low when you buy your home! 
 
Negotiate with the Seller
This one can be tricky. There’s always room to negotiate when you buy a home, in many ways. You can negotiate the price of the home, or what the seller will provide or do for you if you buy. But you can also negotiate that the seller cover all closing costs if you buy, or lower the cost of the home to cover the closing costs you’ll have to pay. Be careful if you choose to go this route. If another potential buyer offers the same amount as you do, but does not ask that the seller cover closing costs, they’ll be the ones the seller strikes a deal with! 
 
A seller will also be more likely to agree to this type of negotiation if you have presented him or her with at least the asking price of the house as an offer. To keep things on the safe side, you may consider only asking the seller to pay half of the closing costs. Things may also swing in your favor on this front – if, for example, the home inspector finds issues with the home that will cost you money to fix, you may ask for the seller to cover closing costs as a concession for this. 
 
Negotiate with the Lender
Yes, you can do this too. Once you have your loan estimate, you can begin negotiating each fee on the list with your lender. If there are confusing or obscure fees, ask that they be removed. Request that you receive a closing disclosure form, which details your closing costs instead of just listing them. Compare your closing disclosure to your loan estimate and ask your lender to justify any discrepancies. This can make a big difference if there was anything there for you to catch! 
 
Don’t Overpay on Discount Points
These are an upfront fee paid at closing that allows a new homeowner access to a better mortgage rate than “market value”. They can also lower your APR. They are paid as a percentage of your loan. For example, one discount point covers 1% of your loan size. Sounds great, right? There’s a catch! If you aren’t planning to live in your new home for at least seven years, this is wasted money. Reduce your closing costs by paying the proper number of points for your particular situation – which may be zero. Remember, they’re tax deductible, but can’t be refunded once you commit to paying them. 
 
Another thing to be aware of when it comes to discount points is the interest rate environment. If you’re already buying in a low interest rate environment, you don’t need to pay for a ton of interest points to lower your interest rate even further. These points add up fast with one point being 1% of your loan value, and for each point you purchase, you’ll have to live in the home for longer if you want to break even. Consider both these two things when it comes to purchasing discount points and you may save a bundle come closing time! 
 
Lock Your Mortgage Rate at the Right Time
There is a lot to be said for the idea that the timing of locking your mortgage can be up to luck. If you do it right, you can lower your closing costs by nailing the right time frame. Rate locks are typically available in 15 day increments up to 60 days, and then in 15 or 30 day increments afterwards. The longer your rate lock, the more you’ll pay, meaning a 30 day mortgage lock is less expensive than a 60 day lock. 
 
The additional cost of a longer mortgage rate lock are paid at closing. See where we’re going with this? An extra 30 days on your rate lock may add up to 25 basis points (or 0.25%) to your mortgage rate! This doesn’t mean you should always choose the shortest rate lock time, though. If you don’t fund your loan during the originally agreed upon lock in window, you’ll be fined by your lender. You can, however, ask for a rate lock extension, which adds a little time onto your rate lock window. It usually works out that a 30 day rate lock window plus a 15 day extension is cheaper than a 45 day rate lock from the start. You can keep your closing costs a little lower by accurately choosing the best rate lock periods. 
 
Shop Around
This may sound obvious, but one way to ensure you have low closing costs from the very start is to shop around for the lender that offers the lowest closing costs. You can ask lenders to match closing costs offered elsewhere, and they may agree. There are some services included in closing costs that you are allowed to shop around for as well. These include the pest inspection fee, the survey fee, the title search, and others. You don’t have to go with the provider your lender suggests unless you have signed a document waiving your right to do so. You can try for a lower price on the same service elsewhere. You’ll be able to see your expected closing costs on your loan estimate. Use these numbers to help you shop around and find better deals, thus lowering your closing costs.
 
Evaluate Your Loan Estimate
Bet you didn’t know you were allowed to do this, did you? When you get your loan estimate, don’t just accept it as fact. Ask your lender to go through each and every single charge with you in person. Ask them what each fee covers and why it costs that much. By doing this, you can identify padded or extraneous fees. You may also see two fees with very similar names, implying that you’re being charged twice for the same thing. It happens! An example is being charged for both processing fees and underwriting fees. You must review your loan estimate carefully. By doing so, you could save yourself some money come closing time. 
 
Other Ways to Save
There are a few random other things you can do to lower closing costs. If your new home was recently appraised  (say in the last year), you can probably skip the cost of having it appraised again and waive this service. You can also save on title insurance by asking for a re-issue rate when you renew your title insurance for a refinance. 
 
Closing costs can seem daunting and stressful, but there are many things you can do to lower them. If you play your cards right, you’ll be thankful that you took the time to learn how to save a few dollars!