This is How You Can Get Your Mortgage Application Approved After Being Rejected by Other Lenders
For a variety of reasons, a person’s mortgage application might end up not getting approved. This is certainly a huge obstacle in the process of buying a home. However, the setback of being rejected isn’t a total hindrance altogether. There’s another way people can make their dream of being a homeowner come true: alternative mortgages.
Why People Get Rejected
For starters, it’s important to understand why one got rejected in the first place. One reason banks and other A-lenders might not approve a mortgage applicant is because they didn’t pass the mortgage stress test.
This may be due to a borrower’s inability to meet the maximum debt to service ratios. Another factor is one’s low credit scores, which could’ve been caused by something less serious like too many late payments to a major red flag like bankruptcy.
When one does goes through the alternative mortgage route, they can eventually graduate back to being able to borrow from A-lenders. The time a person needs to wait will vary depending on their particular situation.
For the most part, one will get a one to two-year term from an alternative mortgage but some will offer something longer lasting up to five years. Still, there are cases when an individual may not qualify again for an A-lender mortgage due to things like credit issues.
How B-Lenders Can Help Borrowers
B-lenders may be the last resort for some, but that doesn’t mean that they don’t offer good perks to clients. For example, some B-lenders will allow one to have a total debt service (TDS) and gross debt service (GDS) ratios as high as 50%. They can even get creative and offer a borrower a 60/60 debt service ratio for those who have a loan-to-value (LTV) that is under 65%.
Another great thing about non-traditional lenders is that they are more tolerant of those with bad credit histories. Applicants with scores as low as 500 and even lower will still be entertained. And unlike, A-lenders they would be more understanding of people with irregular forms of income like tips, commissions, and even Airbnb earnings. A majority of them also have a more open stance on self-employed individuals.
These perks come with some additional costs though. For one, B-lender interest rates will tend to be relatively higher than A-lenders’. The former also offers the lowest rates on shorter-term borrowing.
There’s also the brokerage fees that would have to be paid by the borrower when they get an alternative mortgage. These fees are usually shouldered by A-lenders at no added cost to the client. Speaking of fees, one should prepare to pay for things and services like title insurance, appraisals, and solicitors.
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