Home Mortgage Qualification and Alternative Financing Tips

Qualifying for a home mortgage loan is significantly more challenging than ever before. Subprime lenders approved too many mortgage loans to buyers financially unqualified to repay the debt. Careless lending practices led to a massive influx of foreclosures.

In order for homeowners to obtain home mortgage approval through traditional lenders today, they must possess a nearly perfect credit score, consistently pay bills on time, and have a solid record of employment. While this can be wearisome to borrowers with average or poor credit, alternative options exist for obtaining home loan approval.

One popular alternative is seller carry back mortgages. This type of financing involves the seller acting as the lender. Sellers can carry all or part of the purchase price. Buyers enter into a legal contract which outlines details of the transaction.

Seller carry back financing gives buyers time to clear negative credit marks or establish credit. Contracts generally last between two and five years. Once the contract expires, buyers obtain financing through a conventional mortgage lender.

Many property owners are entering into rent-to-own contracts. Tenants reside in the house and a portion of the rent is contributed toward the purchase price. Sellers usually require a down payment of 5- to 10-percent and apply 10- to 50-percent of the rental income toward the purchase.

Lease-to-own contracts should be drafted by a real estate attorney to ensure both parties are protected in the event of default. Contracts typically last between two and three years to help buyers establish a history of mortgage payments.

Real estate investors and investment groups provide hard money loans to borrowers unable to qualify for conventional loans. Private lender loans are not cheap. Interest rates can range between 10- and 20-percent, compared to 5.03-percent for mortgage loans obtained through lending institutions.

It is not uncommon for real estate investors to require down payments of 30- to 50-percent. Hard money home loans are not intended to last longer than three years. Borrowers should strive to refinance hard money home mortgages as quickly as possible.

Borrowers who not meet conventional home mortgage loan criteria might qualify for Federal Housing Authority (FHA) loans. FHA loan criteria include: providing proof of income, accurate property appraisal, and source of down payment (inheritance, savings, gift, etc.). FHA lending limits vary by state. In order to obtain FHA funding, borrowers must work with an approved mortgage lender.

The Department of Housing and Urban Development (HUD) provides homebuyer assistance programs. These state programs are offered to low-income buyers and individuals working in certain professions including police officers, firefighters, and teachers.

The recessed economy and housing market has opened the door to exceptional real estate deals. Now is the time to invest in real estate as long as you are financially prepared. Realize there is much more to owning a home than making mortgage payments. Take time to do the math of all costs associated with homeownership. If you are ready to take the leap, shop around for the best home mortgage deal.