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Private Non-QM Lenders Have Dropped Their Rates

http://cdn.americanbanker.com/media/gallery/p17vmmujkht5918m91cma9gu17fb8.jpgMost lenders will only extend Qualified Mortgages. A Qualified Mortgage (“QM”) is a kind of loan having more stringent pre-qualification requirements. QM lenders must show the regulators that they have determined, prior to closing, that you, as a borrower, have the ability to repay your mortgage. This is logical, and will continue to be the norm for conservative lenders. Since these conservative lenders in turn have conservative investors who ultimately purchase your mortgage, their investors also want nothing to do with non-QM loans.

But if I lend you money at 6% (say 2% higher than conventional rates because of some additional risk) – there is no doubt that I already have an investor for the loan I just gave you who is willing to pay me, say, 6.5% for the same loan. Why would an investor do that? Because in a large financial market, he too has someone else on the line willing to pay him something more – and so on, and the business is profitable all around.

The old 12-13% “hard money” loans were being advanced to people having unfavorable credit when standard mortgage interest rates were at 5-6%. Now these non-QM lenders have lowered their rates to 6-8%, when today’s 30-year conventional rates have only dropped to about 4%. It’s not a bad deal to pay slightly higher non-QM rates for a brief period until you have satisfied your lender’s seasoning period requirement – and then you can refinance with a conventional mortgage without a prepayment penalty.

 

Here’s the Point: Interest rates for non-QM loans are a bargain right now. If your loan request was recently declined because of your credit history, there are lots of short and long-term financing opportunities available to you.

 

 

Want a Mortgage? It’s Not Enough to Just Confess Your Sins!

Lenders will discover that you had a foreclosure – that you had student loan late fees – that you defaulted on your car loan – that you already sold the asset claimed on your loan application – that you were arrested several years ago – that you neglected to meet your child support obligations, etc.

creditreportIt either comes out on your credit report or through the lender’s use of fraudguard security checks – or even when they just Google your name. Lenders have these and several other extensive background checks and “Know Your Customer (KYC)” procedures that they carefully follow.

If you don’t immediately disclose your Deed-in-Lieu of Foreclosure, do you really think they will believe you are providing them with all details on everything else for which they ask?

You will generally always need to write a Letter of Explanation (“LOX”) to address collection accounts and disputes/inquiries on your credit report. And what if your explanation is solely factual and not remorseful?

As useless as sentimentality might appear in the finance world, lenders want to look into your consciousness – otherwise they have nothing to support the notion that you will do everything you can to prevent another late mortgage payment or foreclosure. The parties recommending your loan need your cooperation in order to support you – because they only have their reputations if something goes wrong with your loan. If they have to work hard for someone who has been concealing the facts (intentionally or unintentionally), they are likely to move on to the next file.

 

Here’s the Point: Be upfront with your untoward credit history. If the lender finds out about an unfavorable fact on their own – without you telling them, they’re not likely to (and shouldn’t) extend you a loan.

 

Declined Again? Don’t Give Up!

It’s been two weeks since your lender told you: “Your loan approval is coming any day now”. Guess what – you have a problem!

Yet you were told your credit score is acceptable, your debt-to-income ratio is comfortably below 43%, and your savings will satisfy the down payment, reserve and closing cost requirements…

Don't give up

Well, unfortunately it didn’t register with your lending officer that you are renting the home you are buying, and that in lieu of rent you are paying for utilities and capital improvements (plus you paid cash for almost all of your housing expenses, and do not have much of a checking account paper trail). And, by the way, the landlord is in default with her lender who is about to foreclose on the home you want to purchase! [Yes, this is a real example]

Without proper explanation, the ultimate buyer of your loan (Fannie Mae) would most definitely conclude that you do not have an arm’s length or independent relationship with your landlord. More importantly, this loan will require too much effort for most lenders, especially if you do not have an established working relationship with them.

By: (i) properly and clearly documenting your receipts, (ii) demonstrating the legality and reasonability of your tenancy, (iii) evidencing proof of your residency, and (iv) ensuring you have an adequate letter of explanation acknowledged by yourself and your landlord, you should be able to get the loan – and avoid having to move your family elsewhere.

Here’s the Point: Lenders are always looking to increase their market share – not by compromising their principles, but by prudently underwriting a well-presented and well-documented loan request.
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