Non-Qualified Loan

Why Do I Need to Keep Good Credit?

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Why Do I Need to Keep Good Credit?

It’s become a practical necessity for many Americans to own a credit record and a corresponding credit score. Not only do you use credit for making your purchases, a credit record is also fundamental in helping you get access to various financing resources such as a mortgage or a car loan.

But how deeply could a three-digit number really affect your everyday, economic life? Why is keeping a healthy credit score so important? Let us count the ways.

Determines your housing budget

Majority of Americans don’t have the cash to pay for a house. That is why we go through the hassle of finding a lender, sorting out all the needed paperwork, and applying for a mortgage. Or, we look for a rental property that is affordable and within our budget.

But a big part of actually getting a home to settle into is your credit score. Both the lender and the landlord would want a reliable piece of assurance that you will not default on your housing payments. And the most fundamental, universally-accepted way to prove that is via your credit record.

If you have a good score, you are more likely to get approved. But if you don’t, you better find another option – that is, if you cannot find another alternative to prove your creditability. Your score sometimes also affects the loan amount you can borrow, and the interest that will be carried into your monthly mortgage payments.

So basically, a good score equals more affordable payments. The same goes with the rent.

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Dictates what you drive

What is true for housing is also true for your car loan. If you don’t have the cash to pay it upfront, you need to find a lender who will let you borrow the money to buy the car. The lender looks at your score and if it is satisfactory, they will then dispense the money with a relatively manageable interest rate. If not, such as in the case of individuals with credit scores 620 and below, you might get denied, or be forced into the subprime market with soaring interest rates. If you have good credit, you get access to larger car loans, with better loan terms and options.

A vital consideration when starting a business

Most of the time, it’s not easy to get your ideas out there. You need money to transform your brilliance into a revenue-producing effort. That is why many entrepreneurs seek business funding via small business loans to get their own projects started. But then again, getting approved for such requires having good credit. Business loans usually have stricter requirements so when it comes to having a score below what’s considered prime, you are most likely to pass through a needle point to get the money needed.

Bills, bills, bills!

Most utility services now entail showing your provider a good credit score. That includes all your basic daily necessities that won’t be provided unless you can prove to the providers that you are a responsible payor.

A career requirement

Although not universal, many employers hesitate to hire candidates or applicants without an established credit score. Your score could also be the basis for salary offers and promotions.

As you see, having a credit score – and a good one at that – is an integral part of the American way of life today. Establish good credit habits, pay your bills and dues on time, and regularly check your record for errors. Being proactive in your credit info will help you ensure you’re ready for when you need it the most.

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Why Lenders Need Your Bank Statement

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Why Lenders Need Your Bank Statement

It’s common knowledge that lenders ask you for your financial statements and bank records when you apply for a mortgage. But what exactly do lenders do with these personal and confidential records?

Taking out a home loan is a game of risk that involves not just you but also the lenders. While you got to obtain the money to own a home, your lenders have to protect their business as well and see to it that the people they are doing business with can give back what they owe.

As a way of mitigating risk, they will require you to prove that you can, indeed, pay back the money you borrow. To do this, you will have to show them that:

  • you have a source of income; and that
  • you are a responsible creditor

Now showing that you have a job or own a business is not a guarantee that you can repay what you owe. You may lose your job in the future and therefore fail to pay your loans. Or, your business can go bankrupt and you will have no source of profit to sustain your financial responsibilities.

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This is why as a means of financial security, your lender will ask for your bank records as means of verifying your statements. These documents will provide your lenders:

a) Proof of Funds

It’s not enough that you have the money there. The lender needs to verify that these funds are legitimately yours. To do this, your lenders usually go through a month’s worth of bank statements to evaluate and verify if all the assets your declared in your loan application is really yours.

b) Proof of Legitimacy

One of the most commonly-encountered issue among mortgage applicants is the cash deposits on their bank statements. Its existence in your account does not automatically guarantee that its sources are yours. Establishing legitimacy then makes it hard for some lenders to verify your finances.

This is the reason why in some cases, lenders ask their applicants to submit statements of explanations regarding their cash deposits. This is especially relevant when your down payment is a gift from a family or relative channeled to your account. If such is the case, the transaction must be duly documented with a notarized gift letter to be honored.

Consistency in your finances is a necessity when you apply for a mortgage. See to it that you properly document your transactions or these might cause delays in your underwriting. Delays in the underwriting process means longer closing time, and most possibly, higher mortgage rates.

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Finding a Non-QM Mortgage Lender

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Finding a Non-QM Mortgage Lender

Finding a non-qualified (non-QM) lender today is getting more and more easy compared to the early years post the 2008 crisis. The challenge is to find the right one that understands and caters to your unique borrower needs.

After the Dodd-Frank Act split mortgage categories into qualified and non-qualified in order for lenders to be more meticulous of the loan products they offer and who they give them to, a significant portion of the borrower market were cut out off of the opportunity to get the financing they need.

These people are not necessarily subprime borrowers, but are those who might be holding two jobs or jobs by season, those who receive pay via commissions, and generally those individuals whose income may not come with regular paychecks and W2s but otherwise have good credit standing.

A non-QM loan usually takes the form of the following:

a) Interest only loans that require interest payments at the first part of the mortgage term. After this specified period, fully amortized payments are then paid.
b) Loans given to borrowers with debt-to-income ratio higher than 43 percent
c) Loans that use other methods to verify documented income
d) Loans that charge over 3 percent in origination costs

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All of the above are not allowed with FHA, VA, USDA, or other government-backed mortgage qualifications. And most people do not usually fall into this type. Hence why the non-QM market thrives.

It is of primary importance to evaluate your purpose for getting a Non-QM loan as that will help you determine which lender suits you best. Many non-QM lenders are specialists and cater to only a type or two of borrowers. Some prefer self-employed borrowers such as small-time entrepreneurs and businessmen, while others accommodate slightly risky borrowers with compensating factors.

Finding the right lender

When choosing which lender to get a non-QM loan from, you must consider a lender’s flexibility. It is the ability of the lender to flex their offers and make changes based on the nature of your situation as a borrower in need. This lender characteristic is easy to find in small, private lenders who keep their loans on their portfolio and do not sell them to secondary markets.

If such is the case, they do not have to adjust to the whims of their investors and are therefore more capable of making adjustments to their loan offers.

If you cannot find a specified non-QM lender in your area, you can try with your bank and see if they can arrange for a loan that fits your criteria. If they cannot accommodate your loan request, expand your search online.

Finding the non-QM lender to work with may require a bit of patience and extra effort, but with today’s looser mortgage guidelines, it is definitely not impossible. Start your search here.