Tag Archive for 'people with bad credit'

While the housing crisis has created unprecedented opportunity for buyers, even those with bad credit, there are many who won't be able to take advantage of the opportunity to buy condominiums even at their drastically slashed prices. Complexes with lots of foreclosures (and perhaps loads of screaming deals) won't be eligible for VA, FHA, or other government housing loans.

If you are shopping for an affordable condo and plan to use an FHA or VA lender (people with bad credit will have a hard time finding financing that isn't backed by the government), make sure before you make your offer that your condo is approved by FHA. You can't get a government-backed loan on a condo without the complex being approved--either already on a list or on a case-by-case basis (often called a "spot" approval. If you are trying to get a first-time purchase through before the November 30th deadline, writing an offer on an approved unit is even more critical--FHA has been deluged with requests for spot approvals and they are not happening quickly. You can find approved projects HERE.

What makes FHA approve or reject a condo? If you've found a condo and want to see if you can finance it with a government loan, check the list first. If you don't find your project, call your mortgage loan officer and make sure that he or she gets an FHA condo questionnaire sent out immediately--you can see the importance of choosing a very responsive loan professional because someone who doesn't take action promptly can cost you a lot of money. You should be able to get a quick idea of whether the property is approveable or not, before wasting your time or money time and money trying to find out.

Here's what a condo should have to be approved for government financing:

1. The whole condominium project must be complete, including all common areas and facilities.
2. Control of the common areas must have been turned over to the homeowners association (HOA) for at least one year.
3. The HOA mustprove that the project has the appropriate hazard, liability, and flood insurance.
4. Individual ownership must be owned fee simple, with undivided ownership of common areas by unit owners.
5. There must be no legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is unacceptable. Such restrictions include rights of first refusal and restrictive covenants.
6. At least 90% of the units in the project must have been sold--the builder can't be sitting on a bunch of unsellable units.
7. At least 51% of the units in the project must be owner occupied--not foreclosures owned by banks or rental units owned by investors.
8. No single entity may own more than 10% of the units in a project unless ownership of less than four units would disqualify an otherwise eligible project. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time.
9. Condominium projects consisting of 30 units or less can have up to 20% of the units encumbered by FHA insured mortgages.

Ineligible projects include condominium hotels or "condotels", timeshares or segmented ownership projects, houseboat projects, Multi-dwelling unit condominiums, and all projects not deemed to be used primarily as residential.

This system will be changing soon, with many more projects being approveable but no spot approvals will be issued after November 2nd, although rumors suggest that the deadline could be extended to December 7. And there will be some problems before everyone gets the bugs out of this new system.

Those of you waiting to take the step from renting to home ownership may want to step it up. First, unless Congress extends the deadline, that first-time home buyer credit is going away the end of November. Of course those on the sidelines face challenges--often bad credit, a little short on income, insufficient down payment, or lack of time on the job. But you don't know until you try, right? With a good loan agent, even a decline from a lender can be a useful tool. Here's how to make the most of that information.

Applicants for mortgages get declined for a few reasons. Bad credit, too little reserves, or insufficient income are the biggies. But just knowing that you have been declined for a home loan isn't enough. A good loan officer should be able to tell you EXACTLY what caused the rejection of your loan application, what you can do to get approved, and how long (approximately) it will take.

For example, you may have been declined because of your debt to income ratios. Your ratios reflect your ability to pay your loan--even good credit doesn't help if you can't realistically make the mortgage payment. So you either have to make more money, spend less money, find a co-borrower, or buy a cheaper house. The first two options involve budgeting. if you aren't comfortable with a budgeting process, call one of many reputable counselors and get help with this--as they say, if you fail to plan, plan to fail. Probably the easiest way to influence your ratios is to spend less money. Ask your loan officer what your ratios are and what they would have to be to get approved. Then take a look at your debts. Often, a lender won't count a debt against you if you are within 10 months of paying it off. Look at your budget. Can you throw more money at a debt with a high payment to make it go away? This helps you in two ways. First, it gets you used to paying more each month and spending less, which is useful if your new mortgage payment will be higher than what you're spending on housing now. Second, it makes you more qualified to buy a home.

If bad credit is the main reason for your application getting bounced, only time can cure that. Your credit rating reflects your willingness to pay. How much time depends on the severity of your credit errors. Your loan agent should be able to help you with that too; good ones understand underwriting guidelines very well. A foreclosure, for example, takes a minimum of three years to put behind you credit wise. Use that time to develop better habits, like paying on time and avoid over-using credit. It can be useful to ask your credit card companies to freeze (not close) your accounts to keep you from using them while you work at paying them off.

If you have bad credit but make plenty of money, and you find a deal on a house that's just too good to let go, you are in a better position to buy. Bad credit lenders are still in business (although there are fewer of them) and if it looks like you can afford their high rates they will often finance you. Be careful about prepayment penalties and start working on your credit so that you can refinance to a better loan as soon as possible.

Those with insufficient assets face a similar challenge to those with too little income. Budget for savings and watch your accounts grow. Even having enough for two months' of expenses (this is called reserves) makes a big difference on your loan application. Those who are self-employed or on commission need more--at least 3 to 6 months' of expenses to look good. Lenders have learned that even people who don't have bad credit can't pay when they lose their jobs. You can't get blood from a turnip. So, while your credit rating shows your willingnesss to pay, and your income reflects your ability to pay, your assets or reserves demonstrate that you will be able to pay even if you have a financial setback.

A good loan agent can help you plan for the day your application will be accepted. Keep this person's contact information and return the favor by taking your business there when you are ready to buy.