Think you don’t qualify for a mortgage? There may be hope—if you know what to ask your lender.
There are a variety of lesser-known programs to help people refinance an existing mortgage or purchase a home. Policy changes also are opening doors for some borrowers.
Granted, no one is saying getting a home loan is easy.
Three in 10 Americans are unlikely to qualify for a mortgage, according to recent research from Zillow Mortgage Marketplace. And only those with tiptop credit scores get the best rates. The study analyzed 13 million loan quotes and 225,000 purchase loan requests.
But if you’d benefit from a refinance or you’d like to buy a house, there are options you might not know about. The following are several to consider.
For the retiree
Is It the End for the 30-Year Mortgage? The real housing debate boils down to this: Should all Americans continue to have relatively easy access to the pre-payable, 30-year, fixed-rate mortgage?
For retirees who don’t have a steady pension check coming through the door, getting a mortgage can be a challenge. But a recent rule change at Fannie Mae and Freddie Mac is helping retirees who have robust savings but aren’t taking regular distributions from their retirement funds just yet.
In the past, a lender would have told that pension-less retiree that they needed to show they were taking regular distributions of a certain amount in order to cover their mortgage payments, said Cyndee Kendall, regional sales manager and vice president for Bank of the West. Now, balances in retirement accounts can be used to determine mortgage eligibility—without touching the funds.
“It probably affects close to half the retirees that we originate loans for, those who have saved and are not taking distributions until they have to,” Kendall said. The new rule means that retirees aren’t penalized for maintaining their retirement account balances, she said.
For the cash-strapped homeowner
The Home Affordable Refinance Program, or HARP, is a government program that allows people whose home value has declined to refinance into lower rates. Homeowners can be “underwater,” meaning they owe more on their mortgage than the home is currently worth.
And while the program has been in effect for years now, there are supposedly 2 million people who still could qualify, according to Mike Aubrey, a real-estate agent and star of several programs on HGTV. Recently, he’s been drafted by the government to help promote HARP in a new campaign designed to find eligible borrowers and get them into lower-cost mortgages.
Some of the people who qualify—but don’t realize they do—may have applied for a HARP refinance before rules were changed that removed the cap on how much you could be underwater on the current mortgage. The new rules also don’t require an appraisal, he said.
“A lot of people think that HARP is for special cases or the extraordinarily poor. It’s really just for regular people,” Aubrey said. People who took out a mortgage at the height of the real-estate bubble would benefit from this program the most, since their rates could be in the 6% to 8% range, he added.
Those with a current mortgage backed by the Federal Housing Administration may be eligible for the FHA Streamline program, which has a huge perk for the unemployed: There's no income requirement, Kendall said.
For the fixer-upper
Lenders market FHA 203(k) mortgages more heavily in urban areas, where homes are in severe need of rehabbing, Kendall said. But properties that qualify for these loans can be located anywhere. And many times, these diamonds in the rough are bargains.
Call it a “mini construction loan,” which allows people to purchase a home and finance improvements in one mortgage, she said. The mortgage amount is based on the estimated value of the property once the work is completed, factoring in the cost of the work, according to the U.S. Department of Housing and Urban Development website.
While the program is a benefit for homes in really bad shape (think abandoned foreclosure properties), it can also be used for more less dramatic upgrades, such as modernizing a kitchen—the main point being that the upgrade has to increase the value of the home, Kendall said.
For those without a down payment
Coming up with a down payment can be the biggest hurdle for first-time home buyers. But there are ways to help scrape together that money.
Assistance funds are available for home buyers who are expected to be successful as homeowners, and they come from a variety of sources, including state and local governments, lenders and employers. Often, buyers are asked to complete a homeownership course in return.
Also, there is at least one avenue for 100% financing still available for buyers: That’s the U.S. Department of Agriculture loan program, and areas of the country that qualify aren’t always as rural as you might think, said Keith Gumbinger, vice president of HSH.com. Note: Those interested in this option might have to wait until the government shutdown ends to apply, as it appears the USDA mortgage program is closed at the moment, Gumbinger said.