There are a lot of hoops to jump through when applying for a mortgage. A lot of paperwork to fill out and a lot of “proof” to provide. Of employment, of credit, of savings patterns – it goes on and on. And rightly so. Lenders want to make sure you’re able to make your mortgage payments and that your debt load is within reason. People who have skipped out on mortgages or found it impossible to keep up with high payments are the ones who have caused the industry to take such precautions.
But what if you’re a great person and you just don’t happen to meet all of the requirements to be approved for a mortgage?
You may be happy to know that there is such a thing as alternative lending. Legitimate lending – we’re not talking about loan sharks or under the table deals.
Alternative lending is available for those who need a lender to use a dash of common sense when considering both the needs of the borrower and the rules required by the lender. If your application is ever declined, make sure you ask about alternative routes you can take. They aren’t often widely advertised. Your bank should have information or you may want to try an independent broker who works with a variety of bankers, trust companies, credit unions and mortgage companies.
Firstly, alternative lending is not the same as private lending.
A private source of funds would come from an individual or a small group of people who have put their money together specifically to finance mortgages. Alternative funding comes from a larger companies, which could be actually a bank, which have access to multiple mortgage funding streams.
A private lender would be your third choice if an alternative lender also turns you down. Private funds may come with fewer rules and guidelines but will have extra fees or offer you a higher interest.
You’ll find that with alternative lenders as well. What also sets alternative mortgage lenders apart is that they’ll consider any higher-risk attributes that you might bring to the table, such as less-than-stellar credit, spotty income or a unique type of down payment. Alternative lenders may have more relaxed guidelines, which is what you’re looking for. This type of financing will cost you extra and there may be other hidden costs such as payout penalties.
If you go this route, you may be able to avoid surprises by ask questions – lots of them. Make sure you fully and completely understand what you’re walking into with an alternative lender.
What kind of products do they offer
You’ll find that alternative mortgage lenders offer very similar products to traditional lenders. That means mortgages with one or three or five-year terms, open or closed and some with variable rates. As a borrower, you may want to consider a term of either one or three years. This can reduce the possibility of being assessed a payout penalty, just in case your financial picture improves.
So, let’s say you have a higher interest rate because you’ve gone with an alternative lender and suddenly, you’ve got a better job or an inheritance has landed in your lap and you want out of that high interest product. You should think of an exit strategy, and a shorter term will provide that. Think of this alternative mortgage you have as transitional, rather than your “forever loan”.
If you find yourself in front of an alternative lender, they will be quite interested in the strength of the property that you’re purchasing. That’s their collateral. So, they’ll want to know what kind of shape it’s in, how marketable it is. The condition of what you’re purchasing and the condition also has to meet with the alternative lender’s approval, something a traditional lender might not pay close attention to.
So if at first you get a “no”, keep trying!