Many people fall into a category known as "special circumstances" that will cause a bank to
reject your loan application, or require special information to obtain the loan such as when
you are purchasing a condominium. Special circumstances include some benign situations:
holding your current job for less than one year, showing a few late payments on your credit
report, putting less than 20 percent down or being self-employed.
Below is advice regarding the following special mortgage loan situations:
Buying a condominium or town house
This type of housing has different ownership from a single-family detached home. With a
condo or town house, you generally get exclusive ownership to the interior space of your
particular dwelling unit, but you own the common areas (walls, grounds, fences, facilities)
with the other owners in the complex. In a town house, you might also own a private garden
and garage.
Condo and town house developments are governed by covenants, conditions and restrictions.
These dictate the owners' rights and the restrictions on those rights.
You become a member of the homeowners' association and pay dues. The dues cover management
of the homeowners' association, hazard insurance for the complex and a certain amount of
routine maintenance. Precisely what is covered varies.
Tip
The cost of the condo association dues must be included as part of your monthly housing
payment when calculating how much house you can afford to buy.
The purchase agreement should include a contingency that the seller provide the buyer with
condo documents, the articles of incorporation and the bylaws of the homeowners'
association. This should include notification of any ongoing litigation and any special
assessments.
You should receive a copy of the condo budget, which should be a sound, balanced budget with
reserves to cover the cost of major repairs like roofing or elevators. You will also be told
what is the monthly maintenance fee. You can also ask for the minutes of condo meetings for
the past year. This will tell you if any major renovations or changes are being discussed,
and give you some insight into the way the property is run.
The mortgage lender will want to investigate the condo complex from a financial and a
physical (appraisal) standpoint. The lender will review the finances for you, because they
do not want to make a loan on a troubled condominium.
Most lenders have a questionnaire that the condominium association can complete to help the
lender analyze the project, and decide whether it is acceptable as collateral for a mortgage
loan.
- Of primary importance is the percentage of units that are owner-occupied as opposed
to rented out by investors. The current acceptable percentage is 60 percent owner occupied
or higher.
- Another major criteria is whether the project is 90 percent built and
complete.
A condo that meets these two criteria will likely be approved without difficulty.
Other factors that lenders examine: adequate insurance coverage, acceptable operating
budget, competent management and sufficient capital reserves for major repairs.
Tip
Make sure you read the condo documentation carefully and make your approval a condition of
the purchase. Most states have enacted laws governing the sale of condominiums. Check with
your state's division of real estate.
No doc or low-doc loan
These no-documentation or low-documentation loans are designed for the entrepreneur or
self-employed, recent immigrants with money in foreign countries or for borrowers who cannot
or choose not to reveal information about their incomes.
These loans require no documents, such as tax returns, W2 forms or paychecks, or bank
statements. Only assets required for the down payment and closing costs are verified. What
you need to get this type of loan is a substantial down payment, from 20 percent to 35
percent, and an excellent credit history. They also come with a higher interest rate, often
one-half a percent higher than the going rate.
For a low-doc loan, a borrower must be self-employed for at least two years and provide
proof of sufficient assets and excellent credit.
Tip
Home buyers can go with a no-doc loan and then refinance the home later by switching to a lower-rate, full-documentation loan when their financial records improve.
Sub-prime B-C-D loans
These are the loans for people with past or current credit problems. They come with more
lenient underwriting guidelines, but they also come with the price of higher rates and fees.
Still, this is a way for people with credit problems to get into a house and, at the same
time, boost their credit standing.
The mortgage broker should help the borrower with credit problems to map out a plan so that,
as soon as the credit and financial circumstances improve, the borrower can refinance to get
the best going market rates.