The most common question I hear from buyers that do not qualify for the loan they want is, â€œHow do I get around that?â€
Regardless of what you have heard about tough underwriting guidelines, the truth is they have not changed much in the last 20 years.Â Recently, I ran across some of my notes from 1991 and the guidelines today are the same as they were back then.Â In fact, the income ratios are a little more liberal today than they were back then.Â
Most consumers and Realtors believe the mortgage underwriting guidelines exist just to protect the lender.Â Actually, they protect the borrower just as much if not more than they do the lender.Â Most lenders can easily survive a foreclosure whereas most families are financially devastated by one.Â The loss is but a fraction for the lender, it can exceed 100% for the borrower, they could lose everything and still owe a deficiency.Â Â
My best advice to a borrower that wants to â€œwork aroundâ€ something is, â€œDonâ€™t do it!â€Â Any such maneuver increases the risk level significantly.Â Â
The examples are endless but I will show a couple.Â Letâ€™s look at a buyer with a low credit score.Â They want to know a short cut to bump their score (see Credit Repair can be a Crime).Â There are two distinct reasons for low credit scores, first a credit file that has a few factors that are causing the ding, nothing serious.Â But the other is a credit file that has a history of mismanaging money, much more serious.Â The first individual may pay down a credit card and see their scores jump, nothing at all wrong with that. Â The other person is the one that will be most allured by a work around, exactly what they should avoid.
For the second guy, trying to go further in debt with a track record of late payments is significantly raising the risk factor.Â Â It is simple math really, if you are having trouble making payments when your housing expense is $1,000 per month, you canâ€™t make them at all if your housing expense increases to $1,400.Â Yet people will fight trying to work around the system and get a loan.Â The goal by the way is not to get a loan but to buy a home.Â That is the motivating factor.Â
Will be back later with more examples, thanks for checking back.Â See Part 2