Bank, Conventional or Residential mortgages are ideal for a borrower with good income and good credit. Such a borrower is considered an ‘A’ or a prime borrower.
A prime borrower gets the lowest rates, no fees, and extended terms. However, this is becoming more and more uncommon in today’s market due to very strict qualifying guidelines and the Stress Test.
To qualify for a Bank Mortgage, credit needs to be super good, and income needs to be strong and verified. Total debt ratios can be no more than 44% and even that is with other compensating factors.
If you do not qualify with an ‘A’ lender or you are a bank turndown, your mortgage request is often pushed to the ‘B’ or the Alternative, Alternate or Alt-A side.
Alt-A Mortgages
‘B’ Banks or Alt-A mortgage is not by any means a slam dunk approval. Alt-A lending also requires income verification but the Total debt ratios can go up to 48% and in some cases to 50% or even more with compensating factors. The good news is that even if you have bad credit or a low credit score you may still be able to get an Alt-A mortgage at low mortgage rates so long your debt ratios are fine.
Banks that offer Alt-A lending can also use bank statements to qualify self-employed borrowers. For salaried employees, the banks do need income verification.
PRIVATE MORTGAGES
Private Mortgage Brokers come to your rescue if you are turned down by the Banks and the Alt-A lenders.
Private mortgages are indeed one of the lifelines for the economy. If private mortgages were not available, the delinquency and the foreclosure rates will skyrocket. Private mortgages come to the rescue for borrowers when the banks say no.
However, private mortgage comes with a price in the form of slightly higher mortgage rates.
Private Mortgage lenders are what we call common sense lenders, and they do not have any specific underwriting guidelines to follow. If there is enough equity in the property and a strong exit strategy, your private mortgage broker can surely find you a private second mortgage or a home equity line of credit without income verification. Because the private mortgage lenders are taking on a higher risk, the private mortgage rates are naturally higher.
Private mortgages are also known as band-aid loans as these are short-term mortgages that help the mortgage borrower buy time to improve his bad credit to good credit and his or her income situation. So use the time that a private mortgage broker buys you by getting you a private first or a second mortgage wisely to improve your credit score otherwise a year will go by before you know it, and you will end up paying the same high rate again.
A Private Mortgage Broker can also help you in improving your credit score.
Jeet Singh is a writer and also a Mortgage Broker. He can be reached at 1-833-346-3696 or [email protected]
