| 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
• No-doc or low-doc loans
• Sub-prime B-C-D loans
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.
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.
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.
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.
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