Advice for “Risky” Loan Applicants

With banks clamping down on new home loans, “non-traditional” homebuyers struggle more than ever to win approval for their applications. A bank may consider anyone from a single-parent to a freelance worker too high a risk these days, leaving many Americans without a chance of achieving homeownership. But if you’re among the “non-traditional,” don’t despair.  Help is out there.

Single Parent Support

Single parents wishing to buy a home hope to establish stability for their children. Yet when the economy is so unstable itself, the single-income family may have a hard time applying for a loan. The Federal Housing Authority (FHA) offers help especially for single-parents in this situation.

The FHA mortgage program can provide single moms and dads with many advantages:

  • Compensating factors can allow FHA underwriters to forgive credit imperfections
  • Ease of qualifying with flexible debt ratios can make the FHA home loan an optimal home buying tool
  • Using the 2/1 Buy-Down Program can facilitate lowering your front end housing cost ratio for more opportunities to get approved
  • The FHA mortgage is a great program to finance single family homes and lower cost mobile or manufactured homes tied to land
  • Single parent home buyers can utilize gifts from family members, friends, and distant relatives to meet down payment requirements
  • Borrowers could be eligible for local grants that can help pay down payment and closing costs
  • Sellers can assist single parents by paying up to 6% of closing costs
  • The FHA loan program has government regulated closing costs which control what can be charged for when purchasing or refinancing a home
  • When using the FHA Streamline program, single parents can modify existing FHA loans without having to qualify for a new loan
  • The FHA mortgage program offers single parents unmatched security for home retention

(Sources: LifeStyle Mortage.Com and FHA.gov)

Advice for Freelancers

As a contract worker, you may not enjoy a steady income, a regular paycheck over a two- year history the banks use to verify your suitability for a loan.  Here are ways you can show a bank what you are indeed suitable.

 

  • Tax returns: You may hear that a tax return for a year when you were employed does not reflect your current income. You’ll need at least two years’ worth of income tax returns (more if you really want to make the bank feel safe) that show freelance.
  • Bank Statements:  Begin keeping these. As your income may vary from month to month, your statements give a better picture of your monthly income than your tax returns do. Again, think two years (or more) of statements.
  • Invoices and Contracts: Keep a file of all your outgoing invoices (past, present and pending), completed, current and future contracts, including type of work, clients’ contact information, dates of work done, and amount of money involved. Though these aren’t confirmed by the IRS, which is what the bank wants most, they still give a better picture of your job, your history, and your prospects.
  • Large cash payment down: Put up more than 20% down and you may win points with your lender.
  • Savings and Good Credit: Obviously, your credit history, debt, and savings come into the picture, just as they will with any loan applicant. Get these areas in good shape for maximum loan approval potential.

These are just a few ideas for non-traditional buyers hoping to achieve the traditional American Dream. We welcome additional advice from readers: sound off in the comments below.