MI Home Buyer
A Site for First-Time Home Buyers
When The Big Banks Say No: Finding Mortgage Money
Lending guidelines have tightened considerably over the past year, but getting a
loan is still possible, even if your bank says no. While a few years ago about all
you needed to get a loan was a pulse, today you're going to need some heavy-duty
documentation to show that you're a solid credit risk to get past lending scrutiny.
"It's getting tougher, but overall that's not a bad thing," says Jillayne Schlicke,
a Seattle-based lecturer on the mortgage banking industry. "Too many bad loans were
written for too many people, it's going to take time for the industry to right itself."
If you fill out the application at the bank and get a no, realize that the fight's
not over. Although the sub-prime mortgage loan no longer exists, there are some alternative
sources for funding that can get you your dream home:
The FHA -- The Federal Housing Administration has long been an outlet for people
seeking to buy property but who haven't met the guidelines for conventional loans.
FHA loans require you to show proof of income, the source of your down payment (in
order to prove it's not a loan) and proof that the home you're buying is correctly
valued. There are also lending limits which vary depending on the state. Not all
brokers are licensed to handle FHA loans so if you may be in the market for this
one, make sure your broker has worked with them before. The FHA programs are run
under the Housing and Urban Development HUD) Department. For more on HUD and the
FHA Programs in Michigan go to the FHA Web site for Michigan.
Credit Unions and Local Banks -- If you've been a longtime member of a credit union
or if you've done business with a small local or state bank in the past, you might
have a glimmer of hope there. Traditionally these institutions don't have a large
amount invested in real estate and may not have been as hurt by the real estate downturn
as other banks. Although they have to follow federal lending guidelines regarding
your credit risk, income and the property you're buying, the loan manager whom you've
dealt with in the past may be able to push your application through if it's on the
borderline.
Private Lenders and Hard Money Loans -- Although these may sound like you're borrowing
from "Jimmy the Fish" down at the waterfront, they're actually very legitimate. An
investor or a group of investors invest money by lending you what you need to buy
a house. The only catch is that the terms are generally less than generous. Expect
interest rates to be as high as 15 percent to 20 percent, and they'll also want to
make sure you're putting 30 percent to 50 percent down. The goal for most people
who get these loans is to improve their credit situation and refinance into a conventional
loan in two years or less.
State Programs -- Various states have homebuyer assistance programs that can help
with everything from down payments to mortgage insurance. They're generally for low-income
residents; however, some programs are for people in a certain profession, like teachers,
or for those who participate in a state pension fund. In Michigan the program is
administered by MSHDA - the Michigan State Housing Developoment Autority. For more
on this low incme assistance program go to the MSHDA Web site.
The USDA -- We sometimes kiddingly call these the USDA Prime Steak loans. They are
made under a program that the United States Department of Agriculture set up to encourage
rural home ownership, so the home that you're buying has to be in an area that the
USDA has designated are being rural. Like the FHA programs there are other rules
that apply and lending limits, so check with your mortgage broker to see if he/she
handles this type of loan. To read more about this program and see how you can determine
if the home that you want is in a “rural area”, go to the USDA Rural Development
Web site for Michigan. For those readers in other states, just back the” /mi” off
the Web site address above and click on that to start out at the national level and
then go to your state.
The point of all of this is that you shouldn't get discouraged and give up, just
because some big, snooty bank said no. They're probably too busy counting their Federal
bailout money to bother with new loans. Call your Credit Union and talk to them or
get with a good mortgage broker ( I can definitely recommend Agnes Miesch with John
Adams Mortgage at 248-535-5566) who can look at all of these programs for you to
see if any will work for you. There's still mortgage money out there, if you have
reasonable credit and the patience and persistence to go after it.
