Unique Situations
Some home buyers fall into a gray area that will cause a lender to reject the loan, require additional information to approve it, or modify the terms. Many special circumstances are indeed circumstantial; perhaps you have been at your current job for less than a year, show a few late payments on your credit report or are self-employed.
Here are tips on dealing with the following special mortgage loan situations:
- A problem appraisal
- Buying a condominium or town house
- "No-doc" or "low-doc" loans
- Flawed credit
A problem appraisal
Sometimes the property is appraised for less than you have agreed to pay for it. This can create problems, especially if your down payment is small and the appraised value falls below the amount that you want to borrow.
If the appraisal falls short of the loan amount, you might have to come up with a larger down payment or renegotiate the sale price before the lender will lend you the money at all. Say, for example, you intend to borrow $97,000 to buy a $100,000 house. But the appraiser says the house is worth $95,000. The lender isn't going to give you a $97,000 loan for a house that's worth $95,000. Either you will have to negotiate a lower price for the house, or you will have to pay the original price but come up with a bigger down payment and borrow less than $95,000.
Buying a condominium or townhouse
When you buy a condominium or townhouse, as opposed to a single-family detached home, you generally receive exclusive ownership of the interior space of your unit and joint ownership of the common areas (walls, grounds, fences, facilities) with the other owners in the complex. In the case of a townhouse, you might also own a backyard and garage.
Your mortgage lender will want to investigate the complex from both a financial and physical standpoint to avoid making a loan on a troubled condominium. Most lenders have a questionnaire that the condo association can complete to help the lender analyze the project and decide whether it is acceptable collateral for a loan. The lender will pay particular attention to these details:
- Percentage of owner-occupied vs. rented units. Most lenders want to see 60 percent or more of the complex owner-occupied.
- Is the construction finished? Most lenders require that it be at least 90 percent complete.
- Adequate insurance coverage, including hazard insurance.
- Acceptable operating budget.
- Competent management.
- Adequate reserves to cover maintenance and major repairs, such as roofing or elevators.