Just because your credit is on the low side doesn’t mean you can’t refinance your home, and even get cash out to pay off some bills. You may however need some help. The lower your credit score, the more experienced a broker or mortgage consultant you will need to have working with you.
It’s all About the Packaging
An inexperienced loan officer/mortgage consultant may not know how to package your deal in a way that will get approved and funded on a timely basis. You can take a loan and package it one way and have it get turned down, and then someone else can take that same exact loan, package it differently and it will get approved and funded. It all about putting it together, and that can be a complicated process when it comes to non-prime lending. A newer broker isn’t going to know all the tricks on how to get difficult deals to fund.
Sub Prime Challenges
There are a number of different issues that often come up when working in non-prime borrowing. Here are some of the challenges that non-prime loans often have.
- High Debt to Income Ratio: You debt to income ratio is very important and something you should figure out before your loan is submitted. Take the total of your monthly debt obligations and divide that number by your monthly income and that number is your debt ratio percentage. For non-prime lending it can be as high as 50 or even 55%.
- High Loan to Value: The farther under 80% you can keep your loan in comparison to the value of your home, the better. Having a low Loan to Value (LTV) will also give you a lower interest rate and of course smaller loan amount means lower payment.
- Low Credit Score: As long as your middle credit score is 500, there is hope. It can even dip below 500 for FHA loans, but usually what causes your score to go that low is also what causes your loan to be rejected. A creative, determined broker will have a good chance pushing your loan through even if you have a 500 credit score.
- Appraisal Issues: In the interest of full disclosure, tell your broker or mortgage consultant any issues your home has, before the appraiser comes to inspect the home. Once an appraiser sees a problem he can’t un- see it and neither can your lender. Many loan stopping appraisal problems could have been taken care of if the loan officer would have known about it before the appraiser was sent to the home.
- Income Verification Problems: It’s important to have enough verifiable income to get your debt ratio low enough to be acceptable. An experienced loan officer will know all the different ways to verify enough income to keep your loan from being turned down.
Communication is Key
Many times the reason non-prime loans don’t get approved is because there was a distinct lack of communication between the borrower and the person handling the loan; the broker, mortgage consultant, or loan officer. Many issues that kill loans can easily be taken care of if the broker is given the chance to take care of it. If you let your mortgage consultant get blindsided by a problem then he can’t help you. Tell your broker/mortgage consultant everything that is going against you so he can go to bat for you. If you cannot show enough verifiable income tell him. If you have holes in the carpet, mildew on the walls, and your bathroom toilet is on the blink, tell him.
Help your loan officer help you. That’s the only way many very difficult deals ever get done.