How to get a mortgage

How to get a mortgage

How to get a mortgage even if you have no credit history

If you are thinking of buying a home, you probably know that having a good credit rating will help you get approved for mortgage loans at historically low rates today.

But what if you don’t have a credit rating?

It turns out that while the mortgage application process is a bit more complicated, you still have options.

Difference between “no credit” and “low credit”

When it comes to getting a mortgage, it is important to understand the difference between “no credit” and “low credit”. And for this, first of all, you need to understand what a credit rating is.

In short: a credit score is a number that helps lenders determine how risky it is to lend you money. There are many different types of credit ratings, but the most widely used is called the FICO rating.

If you’ve never opened a line of credit before, you might think you have a zero credit rating, but you are not. You don’t actually have a credit rating. To calculate your credit score, you need to have a loan in your name (e.g. car loan, student loan, credit card, etc.) for a period of at least six months.

Typically, your initial credit rating falls within the “fair” range of 580 to 669. You can see for yourself, because today it is easy to get see your credit score for free…

A lack of a credit rating is very different from a low credit rating. A low score means that you borrowed money and did a poor job of repaying it. This is a red flag for lenders that makes it difficult but not impossible get a mortgage…

So, is it possible to get a mortgage without a loan?

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Of course you can.

Remember that the main purpose of your credit rating is to help you prove your creditworthiness.

While a low credit rating indicates to lenders that you are not creditworthy, the lack of a score means that you must prove your creditworthiness in other ways.

Getting a mortgage without credit history

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Lenders use computer algorithms to help them process mortgage applications. They need this help because ultra-low mortgage rates in the COVID era brought a stream of applications to lenders.

The story continues

If you are a low-risk borrower with a high credit rating, stable income, low debt-to-income ratio (DTI), and a significant down payment, algorithms can quickly approve your loan.

If you don’t have a credit history, the process will be a little more tedious. Instead of getting approval from a computerized model, you need to manually sign your application.

What is manual underwriting?

For manual underwriting, lenders do not rely on computer programs, but personally verify your ability to pay off your mortgage. They put your finances under a magnifying glass to determine if you can be trusted to pay off the loan.

There are several ways you can help pass this examination. You will want:

1. Provide proof of payment reliability.

You may not have a history of repaying loans, but you do have a history of paying other bills on time. To demonstrate the reliability of your payments, you need to collect a 12 month payment history for two to three different recurring charges. One of these should be related to housing costs, while others may include:

In addition to your payment history, you also need to provide documentation confirming a stable income for two years. These are usually pay stubs, W-2 and tax return… If you are self-employed, you may also need an income statement.

2. Make a large down payment.

One of the best ways to make up for your lack of credit is to put in more money.

If you can put in 20%, it will prove to your lender that you are responsible enough to save money. What’s more, you won’t have to pay your mortgage insurance if you take out regular loans.

A down payment of 20% is not always necessary, but the more you contribute, the better your chances of getting approved.

3. Choose a regular mortgage for 15 years.

As you will soon see, there are government loans specifically designed for people with or without bad credit. While they may be easier to claim, they are more expensive in the long run.

If you have a high enough income to afford the monthly payments, you will pay significantly less over time with a 15-year regular mortgage.

Buying a home without a loan using an FHA loan

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If you are not eligible for a regular home loan, you can take out an FHA loan to buy a home without a loan.

An FHA loan the mortgage is insured by the Federal Housing Administration. Since these loans are government-backed, they allow lenders to approve mortgage loans for riskier borrowers, including those who are not eligible for conventional loans due to their credit history.

This makes FHA mortgages especially attractive to first-time homebuyers, although repeat buyers can take advantage of it as well.

How does an FHA loan work?

Unlike conventional mortgages, which usually require a credit rating of 620 or higher, you can get approval for an FHA loan with a rating of as little as 500 – or no credit rating at all.

As with a regular loan, your application will be signed manually and you will need to show a solid history of paying bills on time.

Depending on your loan, you can take an FHA loan for as little as 3.5-10%.

Sounds like a perfect solution so far, doesn’t it? There is only one catch.

Is an FHA loan a good idea?

With a soft credit rating and down payment requirements, FHA loans may seem an attractive option at first glance.

But if you analyze the numbers, you find that they may not be everything they come up with.

This is mainly due to mortgage insurance premiums (MIPs). With a regular loan, you must: pay mortgage insurance until you create 20% equity in your home. But with an FHA loan, you may be required to pay the MIP continuously.

If you deposit less than 10%, you will pay annual mortgage insurance premiums for the life of the loan. If your down payment is over 10%, which is recommended, you still have to pay the MIP for 11 years.

This ultimately makes FHA loans significantly more costly than conventional loans. However, if you need to buy a home, can’t get approval for a regular loan and don’t have time to build up your credit rating, an FHA loan can be a great last resort.

How to buy a house without a loan and without money

Believe it or not, you can buy a house without money and credit history. But getting a mortgage will be difficult and you will most likely face disadvantageous conditions.

One option is to apply for a USDA loan. These loans are insured by the USDA and allow low- and middle-income individuals to buy fully funded homes with no credit requirements. The catch is that these loans are only suitable for rural and suburban properties.

If you’ve served in the military, another alternative is a VA loan.

VA credits are supported by the federal government and have no minimum credit rating or down payment requirements. However, you will have to pay a one-time VA funding fee.

This article provides information only and should not be construed as advice. Provided without warranty of any kind.

A home is probably the largest purchase you’ll ever make in your lifetime. It requires a lot of time and discipline. But it’s a decision that shouldn’t be taken lightly. After all, it costs a lot of money for anyone—even those who work full-time. It can be even tougher for someone who may be paying for college, too. But just because you’re a student doesn’t mean it’s impossible to live the dream. If you’re still a student and want to be a homeowner, read on to learn more about what you need to know about being a college-going mortgagor and tips you may be able to use to balance the two.

Key Takeaways

  • Being a college student doesn’t disqualify you from getting a mortgage, but consider the costs to your financial situation.
  • You’ll need a great credit score, down payment, employment and/or income, and a low debt-to-income ratio to qualify for a mortgage.
  • HUD offers first-time home buyer programs, while FHA loans come with low interest rates and low down payment requirements.
  • You may need a co-signer.

The Costs of Homeownership

According to the St. Louis Federal Reserve Bank research department, the median sale price for a home in the United States was $341,600 in April of 2021. But remember, this is just the median. Home prices tend to vary dramatically from region to region. For example, if you attend the University of Cincinnati, you’ll be able to find a more affordable home than if you attend New York University and seek an apartment in New York City. In some regions, it may even be possible to buy a home with rooms you can rent out to other students for some extra income. This may end up being cheaper than paying for four or more years of dorm living, and can help you fund your mortgage payments. If you leave the area after graduation, you can sell the house or keep it as a source of rental income.

Living the Dream: Do You Qualify?

Like anyone else, you’ll still need to qualify for a mortgage. Unless, of course, you have a handy inheritance or wealthy parents. But let’s face it, most of us don’t fit into that category. But just because you’re a student, doesn’t mean you won’t qualify. You will still need the same criteria as anyone else to get a mortgage: A great credit score and enough equity to be considered. Keep in mind, though, that many lenders have tightened their requirements for mortgage clients. Depending on the kind of home you purchase and the kind of mortgage loan you get, you’ll need to make sure you’re gainfully employed—or at least have a form of steady income—and have a fairly low debt-to-income ratio. And don’t forget your down payment. If you try to get a conventional mortgage, you’ll have to sock away as much as 20% of the total purchase price to put down.

We’ve tried to make things simple so you can visualize what you’ll need to pay for a mortgage. So here’s an example of what some of the costs will be for a $300,000 home, according to realtor.com:

  • Purchase price: $300,000
  • 20% down payment: $60,000
  • Monthly payment for a 30-year fixed rate mortgage at 3.551% interest rate: Principal + Interest + Property Taxes + Insurance = $1,449

If this scenario is out of your price range, there are other options if you’re a student seeking a home mortgage. Know from the outset that you have to be at least 18 to apply for a loan and purchase a home (or older in some states).

Don’t buy a home if it doesn’t make financial sense, especially if you’re a student.

Home Buying Programs

The U.S. Department of Housing and Urban Development—also called HUD—is charged with creating strong communities with affordable housing for everyone. Created in 1965, the government agency improves homeownership opportunities at more affordable levels. HUD has an abundance of resources as well as special programs for first-time home buyers. It also provides home buyers with state-specific programs for anyone looking to buy a home.

FHA Loans

The Federal Housing Administration (FHA) provides mortgage insurance on loans made by special FHA-approved lenders under the HUD umbrella. These lenders are willing to make FHA home loans with lower down payments because of the government guarantee. Unlike conventional mortgages, you may be able to secure a loan as a student with as little as 3.5% of the purchase price to put as a down payment. This, of course, depends on which state you’re seeking to make the purchase.

FHA loans may also give you a lower interest rate. Most of these mortgages come with a fixed interest rate, allowing people—including students who qualify—to finance as much as 96.5% of the purchase price of the home. This helps cut down on extra costs like closing costs. It can also help keep your mortgage payments down. You may also qualify for the 203(b) home loan, which allows you to fund 100% of the closing costs from a gift from a relative, government agency, or a nonprofit.

You can look up the FHA mortgage parameters on the HUD website.

Impact of Student Loans

If you have student loans, you can defer payment on the debt while you’re in school, which means you’re able to reduce your overall debt load as a student. So, it’s possible that when your lender calculates your debt-to-income ratio to determine whether you can afford a mortgage, the future student loan payments may not be factored into the equation. On the other hand, if you’re paying your student loans in a timely manner, this can help create a positive credit profile. You may want to consider using one of the income-driven repayment plans offered by the Federal Student Aid office, which reduces your monthly loan payments. Most federal student loans are eligible for one of these plans.

Consider a Co-Signer

If you’re a part-time student and have a job or a working spouse, you may have enough income to qualify for a modest loan. But if you lack sufficient income, you may still qualify for a mortgage with a co-signer. A parent, guardian, or significant other may typically be able to co-sign the mortgage loan if that person has sufficient resources, income, and a satisfactory credit profile. The co-signer on a loan doesn’t receive the loan proceeds but is liable for repayment if you fail to make loan payments. So it’s important that you keep up to date with your payments, or risk losing the relationship.

The Bottom Line

Even if you can qualify for a mortgage, that doesn’t mean buying a home is the right decision. For one thing, it requires a number of transaction costs, such as realtor commissions, taxes, fees, and more. If you plan to own your home for a long time, it’s likely that you’ll recoup those initial costs, as your home value appreciates. But if you plan to live in the area for less than five years, you may be financially better off renting or even living in a dorm.

That said, if you have good credit and an income source, and you expect to stay in the area for awhile, buying a home while in school may be a wise decision. Provided you’re willing and able to serve as a landlord, renting out rooms in the home could be a good way to help cover your mortgage. However, as with any major life decision, you should evaluate your lending options and personal situation first.

Moving to another state is a major life decision. You might be making the move to another state due to a job transfer or personal circumstances, such as relocating to be closer to an aging relative. Whatever your reason for moving out of state, there are a few critical steps for a smooth transition.

How to Prepare for Moving Out of State

Planning and preparation are essential before you move to another state. For instance, you’ll want to research state tax rates, including income tax, property tax, and sales tax, to determine how the move will impact your finances. A cost of living calculator can be helpful for determining how much your everyday expenses will vary from what you’re used to. You’ll also want to find out what the state-specific rules are regarding your driver’s license, registration, and license plates.

How to Buy a House in Another State

Find a real estate agent in the area you’re relocating to. A local real estate agent can send you listings for homes in your price range and identify properties that are in desirable neighborhoods that meet your criteria, such as being within walking distance of an elementary school, within a short distance of your workplace, and other requirements. If you don’t know any real estate agents in the area, a good place to start is reading reviews of real estate agents and choosing one from there.

You should also plan to visit the area you’re moving to for at least a few days to visit properties in person and make a final decision before making any offers. A Redfin Agent can take you on as many home tours as you want, and if you find one you like, they can help you prepare and submit an offer while you’re still in town.

How to Get Pre-approved for a Mortgage in Another State

Find a lender that specializes in Relocation loans or is familiar with real estate transactions in the state you’re relocating to. There are several lenders that offer Relocation loans, making it easier for you to obtain mortgage pre-approval and navigate the full sale transaction even when you’re not physically present. While the process is similar to getting pre-approved for a mortgage loan in your own state, it can take longer to get approval, and you’ll likely rely on emailing and faxing documents to your lender and real estate agent.

How to Relocate to Another State with Little Money

Relocating to another state with no money is challenging, as even the process of moving your belongings can be expensive. If you have family or friends in the area you’re relocating to, arrange to stay with them for a few days while you investigate local employment and housing options. Securing a job before making the move means you’ll be generating income soon after the move, which will allow you to secure temporary housing until you purchase or rent a permanent home. If you’re having a difficult time getting interviews, check out the temp agencies in the area in which you wish to relocate.

Moving out of state is a big decision, but by planning ahead, taking time to research your options, and finding a great local real estate agent and the right lender, you can look ahead to life’s next big adventure with excitement.

Mortgage rates are falling but it’s still worth searching for the best deal

After climbing for much of 2018, mortgage rates have been falling since the beginning of the year. The average mortgage APR (annual percentage rate) was recently at 4.28 percent, according to Freddie Mac, compared to a high of 5 percent in 2018.

But just because rates are down doesn’t mean you’re getting a good deal.

“Many homebuyers get intimidated by the mortgage process and just go with whatever is easiest—usually what their local bank is offering,” says Greg McBride, chief financial analyst for Bankrate.com. “Smart buyers shop around to uncover the lowest offers.”

When we shopped around, we found lower rates at various banks. HSBC Bank, for instance, is offering a 30-year fixed-rate mortgage, with an APR of 4.03 percent. Wells Fargo offers an APR of 3.98 percent.

Here are the steps you should take to find the lowest-priced loan available.

Choose a Fixed or Adjustable Rate Loan

If you’re planning to stay in your home for at least a decade, a 30-year fixed rate loan—with relatively low monthly payments—is your best bet.

If you can afford higher payments and want to dispense with the debt sooner, consider a 15-year fixed. It features a lower interest rate and could save you thousands over the life of the loan.

Another option is to choose a shorter-term adjustable rate mortgage (ARM). These mortgages feature lower rates for an introductory period, then a higher rate. On a 7/1 ARM, for example, the rate remains fixed for seven years. After that period, it can adjust annually based on market rates but can only increase a maximum of 5 percentage points above the original rate.

If you’re planning to be in your home for years to come, this may not be the best option, especially since fixed rates are attractive now. “You don’t want to be in a position where your adjustable rate mortgage begins to adjust and you’re susceptible to a large payment increase,” McBride says.

Shop for a Loan

Shop for a mortgage at a variety of lenders, including banks, mortgage brokers, online originators like Quicken Loans, and aggregators like Lending Tree. Go to their websites and fill out preliminary forms to get interest rate estimates immediately or calls from company representatives who can quickly get quotes for you. You can also go to Bankrate.com to compare mortgage rates and find the best deals.

Another option is to find a phone number on the lender’s website and call directly. We found that you can get pretty accurate estimates over the phone. If you want a quote that could lead to a firm offer, you’ll need to give the lender your Social Security number.

Before you start looking at lenders, decide what kind of home you’re interested in and the type of mortgage you want. You’ll also need to tell the lender where you are in the process. Are you just starting to shop for a home, or do you have an accepted offer or a signed contract?

Once you start filling out loan applications, you’ll be expected to verify many aspects of your financial and personal life. Ensure that this part of the process proceeds seamlessly by having all of your essential paperwork in hand. Refer to Zillow’s checklist of what’s usually required.

Look at Smaller Players

In addition to considering a mortgage from the big banks and online lenders, research smaller, lower-profile players such as credit unions and community banks.

Search online with the name of your home state and terms like “community bank mortgage,” “s&l mortgage,” and “credit union mortgage.” We found lots of options this way.

Keith Gumbinger, vice president of HSH.com, a mortgage information website based in Riverdale, N.J., says these smaller lenders typically have better rates for ARMs and offer better terms and rates to people with variable income streams, like the self-employed.

Consider a Mortgage Broker

A mortgage broker can shop among many lenders and get better rates than you might on your own. But be aware that brokers get paid by the banks, not you, so check them out carefully.

“If you go the mortgage broker route, get recommendations from friends or colleagues who have had a good experience with a particular mortgage broker in the past,” says McBride.

Mortgage brokers can save you money. For example, when we compared the best rate we could find on the Quicken Loans website with the best rate from a broker who worked with United Wholesale Mortgage, the broker got us a rate that was half a percent less. And while the rate we found came with points, the deal the broker offered us required zero points.

You can use the website, findamortgagebroker.com, to help you get a broker.

Understand the CFPB Loan Estimate

Once you’ve seen some attractive rates from a few lenders, ask each for a Loan Estimate. This is a standard document designed by the CFPB to help you compare mortgages. You can even use it to compare different types of loans, say, a 30-year fixed loan and 10-year ARM.

To get a Loan Estimate, you’ll need to provide documentation of your income and assets, among other items. And you’ll need to supply your Social Security number so the lender can research your credit history.

Get Loan Estimates from as many lenders as you can. Multiple inquiries on your credit records will not lower your credit score as long as they all come within a 45-day period and are for the same product—a home mortgage, for instance. They’re all considered one inquiry under these circumstances, the CFPB says, letting you shop around without damaging your credit.

Steve Baughman, a housing specialist at Fair Housing Contact Service, a not-for-profit in Akron, Ohio, that provides HUD housing counseling, suggests you get all the Loan Estimates on the same day, so you can make accurate comparisons. The Loan Estimate offers three key figures you can compare among lenders: the annual percentage rate, the interest rate and principal accrued after the first five years of the loan, and the “total interest percentage,” that is, the total amount of interest you’ll pay over the loan term as a percentage of your loan amount.

How to get a mortgageThe gig economy is thriving. So why hasn’t the mortgage industry caught up?

First, what is the gig economy?

You may be one of more than 50 million freelance workers in the United States. Perhaps you provide services through Uber, Airbnb or similar apps. If so, you’ve participated in the gig economy as a temporary worker.

The gig economy is simply a departure from the traditional employer-employee relationship. It reflects the fact that more and more people provide labor as independent contractors rather than working for one company. This type of arrangement has advantages and disadvantages. Typically, it provides terrific flexibility and lousy benefits. For better or worse, freelance careers are increasingly common.

Mortgage loans for temporary workers can be obtained, but it isn’t often easy.

Get a loan without a job: tough — but not impossible

When you apply for a mortgage, a lender is going to want to know who your employer is, how long you’ve worked there and your monthly income. All straightforward questions if you’re a traditional employee.

Freelancers, on the other hand, often begin their answers to these questions by saying “It’s complicated….” The issue isn’t “Can you buy a house if you are unemployed?” It’s just that there may be multiple “jobs” providing income in an irregular stream.

Though they may be very successful, workers in the gig economy don’t have a full-time employer, may work a series of different jobs from month to month or even day to day, and have variable incomes. In short, they lack some of the key ingredients lenders tend to look for on a mortgage application.

Fannie Mae and Freddie Mac, mortgage finance companies that play a huge role in setting the standards for the industry, recognize the mismatch between the evolving gig economy and traditional mortgage requirements. They’ve signaled an intent to update their standards to more accurately account for gig economy incomes, but until changes are made, qualifying for a mortgage in the gig economy may be challenging.

How to get a mortgage without a full-time permanent job

Don’t assume that the disadvantage gig economy workers have in qualifying for a mortgage is insurmountable. There are at least nine things you can do to overcome challenges associated with mortgage loans for temporary workers:

9 ways to get a loan without a job (full-time)

  1. Get part-time employment. Some members of the gig economy are on an employer’s payroll on a part-time rather than full-time basis. In terms of listing your employer and income, this should fit fairly neatly into the traditional application process — as long as that part-time income is sufficient to qualify for the mortgage you’re seeking.
  2. Demonstrate income stability. If you don’t have a regular employer, the goal should be to show that you have been able to generate a fairly stable income through the gig economy. The longer you have been doing it, the easier this should be.
  3. Show two years’ freelance or gig economy experience. Many people wonder, “How long do you have to be on the job to qualify for a mortgage?” Lenders typically want two years of employment history. In the absence of that, being able to show you’ve been able to make a go of it as a freelancer for at least two years is the next best thing.
  4. Diversify your income. Freelancers often describe their workflow as “feast or famine.” If you can cultivate more than one source of regular work, it can help smooth out some of the ups and downs and make your income appear more stable to a potential lender.
  5. Pay your taxes! Um, let’s be honest about something. Some people in the gig economy work under the table to avoid taxes. When it comes to qualifying for a mortgage though, one of the problems with working under the table is that in the absence of regular paychecks, lenders are likely to lean heavily on your tax returns for income verification.
  6. Boost net income. If you have been diligently declaring your freelance income, be aware that what lenders are most interested in is net income. So, if you’ve been deducting work expenses on your tax returns, this reduces the net income lenders can use to assess whether or not you qualify for a mortgage loan.
  7. Make your credit record shine. Lenders make judgements based on a number of different criteria. If you don’t have what they are looking for in terms of a traditional employment relationship, you had better not have credit problems on top of that. A clean credit record can show that you’ve been able to consistently meet your financial obligations while working in the gig economy.
  8. Build a healthy down payment. One way lenders assess risk is via a loan-to-value ratio. The bigger your down payment, the lower the ratio this will be and the less risky the lender will consider your loan. A healthy down payment can also demonstrate your ability to thrive financially in the gig economy.
  9. Get pre-qualified or pre-approved. Going through a pre-qualification or pre-approval process before you bid on a house can help you identify any qualification trouble spots up front. It can also ease sellers’ concerns when deciding between competing bids.

Acceptance of gig economy income for mortgage approval is evolving, and some lenders are more ahead of the curve than others. As you start looking for a lender, ask upfront whether they have written loans for freelancers and what their requirements are.

Ensuring upfront that you’re talking to a lender who is open to making mortgage loans based on gig economy income should save you some time in the long run — and as any freelancer knows, time is money.

See Mortgage Rate Quotes for Your Home

By clicking “See Rates”, you’ll be directed to our ultimate parent company, LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders.

No-income verification mortgages, also called stated-income mortgages, allow applicants to qualify using non-standard income documentation. While most mortgage lenders ask for your tax returns, no-income verification mortgages instead consider other factors such as available assets, home equity and overall cash flow. This makes it easier to get a home loan if you’re self-employed or rely on seasonal commissions.

What is a No-Income Verification Mortgage?

In no-income verification mortgages, lenders don’t require applicants to prove or document a source of income. Other names for such mortgages include “stated-income” loans and “no-doc” or “alt-doc” loans, but all of them fall under the same umbrella definition with only a few differences. There are four main types of no-income verification mortgage loans, each with its own level of requirements.

  • SISA – stated income, stated assets
  • SIVA – stated income, verified assets
  • NIVA – no income verification, verified assets
  • NINA – no income verification, no asset verification

Stated Income, Stated Assets

A SISA loan can be useful if you have significant income and assets that are difficult to document. When you apply for a SISA loan, the lender agrees to accept the income and asset figures you provide, with no documentation needed. This can be helpful for small business owners who keep all their assets in a business account and don’t document their personal compensation with pay stubs, W-2 forms or 1099 forms. In such cases, bank statements for 12 to 24 months can be used to calculate the business’s monthly cash flow in place of other documentation.

Stated Income, Verified Assets

This type of loan is most useful if a big part of your income is hard to document, but you have verifiable assets on hand. The lender agrees to accept your income figure and verify your available assets. One example where SIVA would be appropriate is for someone whose income is based on tips or gratuities but who has a personal bank account in their own name.

No Income, Verified Assets

A no-income, verified assets loan is meant for applicants who have verifiable assets but income that cannot be documented. In this case, the lender verifies your assets and does not take your income into consideration. A retiree who draws income from their retirement accounts may not have enough verifiable income, but their assets can be documented, so they would benefit from using a NIVA loan.

No Income, No Assets

With the fewest requirements of all, NINA loans are best for applicants who cannot provide documents for either income or assets. NINA lenders base approval solely on the collateral and other non-income factors. Someone who is employed by a foreign company and holds their assets in a foreign bank may not be able to provide any documentation acceptable to U.S. lenders. Using a NINA loan in this case might allow the borrower to skip document translation and international asset transfers.

History of No-Income Verification Mortgages

No-income verification loans became very popular in the years leading up to the housing market crash in 2008. Their growth was fueled by relaxed underwriting standards and rising real estate prices which led consumers to believe that homes would continue to gain value indefinitely. Once it became clear that this wasn’t the case, no-income loans fell out of favor among lenders and investors.

Originally, these loans were meant to accommodate people whose income was complicated by seasonality, self-employment or independent contracting. During the run-up to the crisis, they instead became a shortcut for lenders to push unqualified borrowers through the mortgage process.

As housing defaults skyrocketed and government regulation tightened, these loan programs all but disappeared. Lenders were required to document the borrower’s ability to repay the loan, and investors had little interest in buying mortgage-backed securities for loans that Fannie Mae and Freddie Mac would not endorse.

Are No-Income Verification or Limited Income Verification Mortgages Still Available?

These types of loans are still available from lenders who offer portfolio lending options and aren’t held to qualified mortgage rules by government agencies like Fannie Mae or Freddie Mac. No-income lenders use private equity from investors to create these product offerings. These include direct lenders like Chase Bank, Citibank and U.S. Bank; wholesale lenders like Stearns, JMAC and Newfi; and even large financial investment firms like Charles Schwab.

Most other banks and credit unions don’t offer these types of loans because it’s difficult to package and sell them on to investors in the secondary market. Given that the only alternative is to keep such mortgages in-house, few lenders are willing to make that kind of capital commitment. The added risk presented by no-income mortgages is just one more reason the majority of lenders steer clear of offering them.

Is a No-Income Verification or Limited Verification Mortgage Right for You?

No-income and limited-income verification mortgages are worth exploring if you’re self-employed, have seasonal income streams, or otherwise have trouble qualifying for a conventional mortgage loan. All of these scenarios can make it complicated to document your income, which makes the simplicity of a no-verification loan ideal.

However, consumers with insufficient income should not use these loans as a way to disguise insufficient financial standing. You should only apply for a no-income verification mortgage if you can actually afford to make payments. These loans should be seen as a solution for cutting down paperwork, not for avoiding the common-sense question of affordability.

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While finding a new home can be exciting, navigating the mortgage process can be overwhelming for some. Knowing what steps you need to take can help the process go more smoothly. Once you have an accepted offer, here’s what you need to know to make sure your mortgage application stays on track:

  1. Submit your application. Now that you’ve found the home you want to buy and a lender to work with, the mortgage process begins. At this stage, your lender will have you fill out a full application and ask you to supply documentation relating to your income, debts and assets.
  2. Order a home inspection. Schedule a home inspection as soon as you can. Doing so will give you adequate time before your closing date to negotiate with the seller if the inspection reveals any unforeseen issues.

Why do I need a home inspection?

A home inspection is an added expense that some first-time homebuyers don’t expect and might feel safe declining, but professional inspectors often notice things most of us don’t. This step is especially important if you’re buying an existing home as opposed to a newly constructed home, which might come with a builder’s warranty. If the home needs big repairs you can’t see, an inspection helps you negotiate with the current homeowner to have the issues fixed before closing or adjust the price accordingly so you have extra funds to address the repairs once you own the home.

During the inspection, be sure to ask questions and bring a checklist of things you want information on. Note that a comprehensive inspection should not only bring defects and problem areas to your attention, it should also highlight the positive aspects of a home as well. When you receive the final report, prioritize the issues and decide whether you want to negotiate those items with the sellers. Remember: Every deal is different and negotiable.

5 things to know about homeowner’s insurance

  1. Know about exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These types of coverage must be bought separately.
  2. Know about dollar limitations on claims. Even if you’re covered for a risk, there may be a limit to how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
  3. Know the replacement cost. If your home is destroyed, you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000.
  4. Know the actual cash value. If you choose not to replace your home when it’s destroyed, you’ll receive the replacement cost, less depreciation. This is called actual cash value.
  5. Know the liability. Your homeowner’s insurance will generally cover you for accidents that happen to other people on your property, including medical care, court costs and awards by the court. However, there’s usually an upper limit to the amount of coverage provided – be sure your coverage is sufficient if you have significant assets.

Our Home Loan Navigator can help streamline your mortgage process. You can use this online tool to track your mortgage application, receive disclosures and electronically sign and submit certain documents.

A new law gives most mortgage holders the option of putting payments on pause. Should you take it?

In late March the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act passed into law. Among other provisions providing economic relief from the impact of the coronavirus pandemic, the measure may help if you are struggling to pay your mortgage.

In fact, the law may let you hold off paying your mortgage for almost a year without incurring any fees or extra charges.

That’s good news, of course—but the law’s passage doesn’t mean you can simply ignore your mortgage payments in the months ahead. For one thing, the law does not apply to all mortgages.

But even if your mortgage is covered, the relief doesn’t kick in automatically: You must reach out to your mortgage servicer (that is, the company or bank you pay each month). Until you do, says CR senior policy counsel Christina Tetreault, “the mortgage is still due.”

When you call, have your loan number (which can be found on your mortgage statement) at the ready and take careful notes on your conversations. And be patient: There is already word of clogged phone lines and long wait times.

Here’s what you need to know about the law’s mortgage provisions and how to take advantage of them.

See If Your Mortgage Is Covered

The key mortgage provision of the CARES Act requires servicers of many mortgages to grant forbearance—the option to postpone mortgage payments—to homeowners who request it.

Note that this part of the law applies only to federally backed mortgages. That includes any mortgage that is or has been owned, guaranteed, or secured by one of several federal agencies or government-sponsored enterprises (GSEs), such as the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Department of Housing and Urban Development, the Department of Veterans Affairs, and the Department of Agriculture.

Of course, many of us have no idea whether our mortgage was ever connected to one of these entities. But there’s a good chance the law applies to you: The National Housing Law Project says roughly 70 percent of outstanding single-family mortgages in the U.S. are owned or backed by a federal agency. And about 90 percent of mortgages created since the 2008 financial crisis are covered by the law, estimates Keith Gumbinger, vice president of the mortgage-information site HSH.com.

How to know for sure? Fannie Mae and Freddie Mac, the two largest GSEs, offer online look-up tools and toll-free phone numbers. Use Fannie Mae’s look-up tool or call 800-232-6643. Or use Freddie Mac’s look-up tool or call 800-373-3343. You’ll need to provide your name, address, and the last four digits of your Social Security number.

Your mortgage servicer should also know for certain, Gumbinger says, and in any case you’ll need to contact your servicer to take advantage of the new protections.

But be aware that customer service reps might not have clarity about how different types of mortgages should be treated, says Lisa Sitkin, senior staff attorney at the National Housing Law Project. “So borrowers should check their own documents, be prepared to take a deep breath—or several—during their conversations with servicers, ask to speak to a supervisor if necessary, and consider seeking assistance from a housing counseling agency if needed,” she says.

Even if it turns out your mortgage is not covered by the law, it’s probably worth contacting your servicer and discussing your options, Gumbinger says. “In the current environment, regulators and legislators are strongly encouraging lenders of all stripes to work with borrowers.”

Determine How Long You Need Relief

Under the CARES Act, servicers must let you skip your mortgage payments for up to 180 days. But again, that’s only if you ask for it.

And the meaning of “up to” is slightly ambiguous, Gumbinger says, so consumers might not be offered the full 180-day forbearance right off the bat. If you know that you’ll need the full 180 days to get back on track, be sure to insist on it. If you need more time after that, the law allows you to get up to another 180 days, if you ask.

The law includes several other important protections for consumers seeking forbearance.

The first: Servicers may not charge any fees, penalties, or interest beyond the amounts the borrower would have paid if all payments had been made on schedule.

Second, borrowers do not have to provide any proof of financial hardship to receive forbearance. That is in contrast to industry practice during ordinary times, when lenders and loan services generally grant forbearance only at their own discretion and typically require borrowers to prove they need to postpone payments because of serious financial hardship.

And third, your decision to seek forbearance can’t be reported to credit agencies as nonpayment. After all, Gumbinger says, not being able to pay your mortgage during the coronavirus pandemic “is not a reflection of your creditworthiness.”

Coronavirus Relief: Put People First!

Tell Congress to help families struggling to pay their bills.

Decide If Forbearance Is Right for You

Nobody who needs it should feel sheepish about asking to postpone their mortgage payments.

Also keep in mind that the mortgage protections are in place for the length of the declared emergency or the end of the year, whichever comes first. We don’t know when President Donald Trump will declare the emergency over, so think ahead. “You may have no problem paying your mortgage this month, but what about a few months from now?” Gumbinger says. “Don’t wait until you’re deep in the hole. It could be too late.”

On the other hand, if you don’t anticipate a substantial loss of income during the COVID-19 pandemic and can still pay your mortgage, you probably should, says Debby Goldberg, vice president of housing policy and special projects at the National Fair Housing Alliance.

One reason is that you’ll avoid unnecessarily clogging the phone lines for people who more urgently need a reprieve, she says.

Another is that you’ll eventually have to make up for the missed payments—and, Goldberg adds, the repayment terms probably “won’t be entirely without costs.”

Indeed, despite the prohibition on extra fees and charges during forbearance, the law is problematically silent on the question of when and how borrowers will bring their accounts current after their forbearance period is over, says Sitkin at the National Housing Law Project “There currently is no consistent rule or framework about what’s supposed to happen,” she says.

Many consumer advocates, including CR’s Christina Tetreault, are concerned that some lenders will insist that borrowers catch up to their original payment schedule as soon as the forbearance period is over with a large “balloon” payment. That could leave some mortgage holders worse off than they would have been without forbearance. Consumer Reports sent a letter to the Mortgage Bankers Association urging it to make the mortgage program as universally available and seamlessly accessible as possible.

Some servicers will probably ask borrowers to catch up to the original payment schedule by resuming their full monthly payments and making modest extra payments over a period of, say, a few years. Borrowers who are unable to resume full payments after the forbearance could be forced to go through a loan modification process, where their payments are lowered and the term extended further into the future. In the worst-case scenario, their home could end up in foreclosure.

With borrowers who are in a position to resume their regular payments, Sitkin says, the best option would be to add the missed payments to the end of the loan. “Without reamortizing and without a lot of paperwork,” she says. “It’s the simplest, cleanest way to do it, for everyone involved.”