If you want to purchase a new home or refinance your current mortgage, be sure to check out the wide array of loan programs available. If you have less than excellent or even poor credit, you can still qualify for a loan. If you have outstanding credit, though, you are in the proverbial driver’s seat, when it comes to selecting your loan program. Be sure to find a good mortgage consultant, and carefully explain exactly what you need. Here are just a couple of “outside-the-box” programs that come in handy for some people but require excellent credit ratings.
Stated loan programs are designed for a person whose income or assets fluctuate from month to month and year to year. Not many banks offer stated programs. Many people who need stated programs get turned down by not only banks but by inexperienced mortgage brokers who don’t understand the breadth of the programs at their fingertips. So, you may have to enlighten them with your own insight by telling them this is the program you need.
Stated programs are for people who may not qualify for a conventional loan, because they do not meet income requirements a lender has. A prime example is someone who does not show all of her income on a W-2 tax return, for one reason or another. This person may make enough money to cover the mortgage payment, but she can’t prove she makes it on paper. Lenders like to see two years of W-2 income. This proves to them that you consistently make enough money to pay back the loan. Now, it’s important to note that this is a good credit program, and a lender will want someone with at least A-minus credit for approval. Here is where all that work to maintain your spartan credit record is going to pay off.
What the stated loan requires is all standard documents, except income verification. In other words, the loan officer is going to state your income on the application, and no proof is required. Please note that this program is not intended for someone who works at McDonalds to try to state that he makes $200,000 yearly, so he can get approved for a $400,000 loan. It is intended for people, like salesmen, whose income varies or for businessmen, who work on bonuses, which they may not receive until the next year. As long as the income is reasonable for the profession, no underwriter will ever question it. So, if you needed to make 60,000 yearly for approval, but you only show $54,000 on last year’s W-2, your mortgage broker can get you a stated income program, and he will simply write $60,00 on the application. Don’t worry, the lender won’t ask for pay stubs or tax returns. Your credit rating speaks for itself. In other words, the lender sees that you have an excellent payment history on your other debts, so he is willing to take on a bit more risk.
A stated asset program works the same way, and good credit is required for approval in this program, too. Lenders require cash reserves, in order to cover several months of mortgage payments, in the event something goes wrong after the loan closes, like you lose your job or get hurt. This can be a problem for people who have no savings, stocks, or retirement accounts, which are all acceptable forms of reserves. If you fall into this category, you simply ask for a stated asset loan, and the mortgage broker will state enough assets on your loan application to appease the lender.
This seems fraudulent, you might say. It isn’t, as long as you follow the guidelines set forth by the lenders. Remember, they created these programs, so they could loan more money. You’ll pay, of course, because the lender will hit you with a premium on your rate, because the loan is more of a risk. So, instead of getting a 6% rate, you might get as high as 6.75%, but at least you’ll get your loan.
There are many other loan programs that allow you to borrow more of the equity in the house, let’s say up to 95% or even 100%, due to a great credit rating. Some programs allow for an improvement on your interest rate.
It’s always important to ask your mortgage broker if there is some kind of incentive because you have A or A+ credit. Most lenders allow the mortgage broker to either give you the break in rate, or they’ll give it to the broker in a cash commission. Many unscrupulous brokers will never mention the credit bonus to you, and they’ll make up to .25% of the loan amount for themselves.
So, if you had a $200,000 loan, and the lender allowed a .25% interest reduction or commission to the broker, and the broker takes it, instead of giving it to you, that mortgage broker would make $500.00 extra dollars, which would be paid by the lender. Of course, if you had received the .25% better rate, your payment would decrease by about $30.00 each month and $360.00 each year. That’s nearly $2,000 if you have the loan for five years that you would lose to a greedy mortgage broker. So, always ask for something, due to your excellent credit.
And always remember, with good credit, you are king. And kings always make the rules.