by: Michael Creditfirm.
Looking to Buy a house but can’t prove income?
A few years ago, your loan officer would have steered you toward a “no doc” or “low doc” loan where you would have to provide limited to no information about your income. But those loans are pretty much dead. Or are they?
Joe Kelly, president of ArcLoan.com, a national mortgage firm, says that no doc loans may be available from “portfolio lenders,” such as credit unions or community banks.
A Portfolio Lender is a company that not only originates mortgage loans, but also holds a portfolio of their loans instead of selling them off in the secondary market.
Portfolio Lender requirements for a no doc loan:
- Very high credit scores (720 and up)
- No Derogatory marks on your Credit Report
- Low LTV (loan-to-value)
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by Neal Frankle
As you probably already know, it can be almost impossible to obtain a bank mortgage with bad credit. If you otherwise can’t get a loan because you have a troubled credit history, one alternative to a traditional bank mortgage is to obtain one from the seller. Seller financing has its benefits, as well as its risks. You also need to know how to find the right seller to meet your needs.
Why sellers might consider financing a mortgage
These days, real estate prices have dropped yet property owners are still having a hard time selling homes. That means more owners are desperate to sell. As a result, more sellers may entertain using this unconventional approach.
Interest rates are also low. This can make seller financing more attractive to property owners, especially those who aren’t reinvesting in more real estate but are looking for income-producing investments. Banks offer investors less than 2% interest. If you come along and offer 4%, that could be engaging for the right seller.
The benefits of seller financing
First, if you have some financial challenges in your history and need to build your credit score, conventional lenders may not be willing to give you a loan. If that’s the case, this may be the only alternative you have to take advantage of the current low real estate prices.
Second, when you get a loan directly from your seller, you save all kinds of fees. These purchases are typically made directly. That means you save on real estate commissions on top of all the loan fees and points you keep. Compared to a conventional purchase, you could be saving tens of thousands of dollars when you consider all the commissions, points and fees.
On top of that, you could possibly arrange a much lower interest rate. For example, if you have impaired credit, you might get a loan from a bank but it might be very expensive. On the other hand, a seller might be persuaded to view your credit history differently and extend a lower rate as a result.
How to find the right seller
To be sure, most people who sell real estate are not in a position to back your loan. And even those who are may need to be persuaded. But you only need to find one seller who is willing.
You are looking for people who are downsizing and those with a ton of equity or better yet, no mortgage at all. Get the word out to friends and family. Spread a wide net. Use your social circles and social media such as Twitter and Facebook to get the word out. Search ads in Craigslist and actually place an ad there and in your local paper. Don’t give up and don’t stop there. Let people in your church, synagogue, or other communities know what you are looking for and ask them to keep their eyes open.
You can even approach real estate agents and brokers. Let them know what you are interested in doing. Speak to many brokers and follow up with them. Ask friends if they know good real estate professionals who either specialize in this or who are seasoned veterans. Realtors who have been active for many years have the greatest chance of knowing clients who might be the perfect match for you.
How to convince a seller to do business with you
As I said, most sellers will be hesitant to carry your loan. That’s because they don’t want to have to foreclose should you be unable to make your payments. And they think you are a greater risk since they know banks won’t grant you a loan.
Your job is to help them overcome their fears. You do this by coming into the deal with a very large down payment. Also, prepare a “resume” of sorts that shows them how stable your income is. Be upfront about credit blemishes and explain what you’ve done to correct your mistakes.
As a last resort, get another person to co-sign the loan. This is certainly far from ideal and it may be difficult. But like finding a seller to finance, remember, you only need to find one person to co-sign in order to make this happen.
Buying a home using seller financing is not without risk. If a bank feels it’s better off not making a loan to you, they might know something you don’t. If you take on a debt that you can’t afford, you’ll end up losing the property, your down payment and your good credit score.
Make sure if you go this route you are sure you know how much house you can afford — then buy a home that is a bit cheaper than that.
Buying a house and having the seller carry your mortgage can be a great way to take advantage of today’s low real estate prices and interest rates. It’s not easy to pull off but it’s well worth it if you have no alternative. And, while difficult, it’s far from impossible if you follow the steps outlined above.