For some refinancers and would-be buyers, today's mortgage rates are the ultimate tease. While ads tout the lowest rates in history—recently below 4 percent for a 30-year fixed—qualifying for a mortgage that cheap can be an exercise in futility
Less-than-perfect credit will hurt, of course, but you may also find yourself struggling to qualify if your situation is deemed at all unusual, which could mean anything from buying a condo instead of a single-family home to owning a business
The challenge: You're self-employed
Solution: Pass on deductions
Business may be booming, but don't expect the bank to take your word for it. If you haven't been running your own company for at least two years, you’ll probably have difficulty getting a loan
Assuming you overcome that hurdle, banks will use the average income on your last two tax returns or the most recent, whichever is lower, when determining the rate on your loan and how much you can borrow
What you can do is forgo or defer deductions, such as those for travel or new equipment, on your 2011 tax return. While that will increase your tax bill this year, it could be worth it to nab that lower mortgage rate. Your health care write-offs and IRA contributions are fine though, lenders can’t penalize you for those
Also, ask your business contacts for the name of a mortgage broker who knows your field. A savvy broker will shop around for private lenders. These lenders don't resell their loans via government agencies and as such, aren't held to their restrictions, which gives you more wiggle room
The challenge: You've lost equity
Solution: Look at government programs or pay a fee
Owners who are underwater can ask a lender about the government's revised Home Affordable Refinance Program (HARP), which has no loan-to-value limits. In order to qualify though, you must be up to date on your mortgage payments and have taken out your loan before June 2009
If you're trying to refinance and have less than 25 percent equity, you may have to pay a quarter of a percentage point of the loan to get the lowest rate. As long as you plan on staying in your home a while, it's probably worth paying
The challenge: You're purchasing a condominium
Solution: Check the development's finances before bidding
In many places, condominium prices have fallen more than those for single-family homes. But for you to get a federally-insured loan on a condo, the development must meet strict criteria: 70 percent of units in new condos must be pre-sold, no more than 10 percent of the development can be owned by a single entity, and no more than 15 percent of owners can be more than 30 days late on their maintenance
A private lender may cut you some slack, but your loan rate will probably be two or three percentage points higher. So find out the details of the development first
You may be better off purchasing in a building that meets the criteria for a federally-backed loan, even if the property is more expensive, versus taking a chance on one that has better days ahead, you hope anyway
The challenge: Your credit is less than exemplary
Solution: Fix it, explain it or get an FHA loan
The average credit score for a federally-backed loan was recently nearly 760, which is the highest ever. Even a slight difference of 720 versus 760 can raise your rate by a quarter of a percentage point. So be sure to check your reports; you can get them for free at annualcreditreport.com. Also review your scores from all three credit bureaus, which are $10 each at myfico.com. If you see any errors, be sure to correct them before shopping for a loan
If the blemishes on your credit are a result of bad luck, such as job loss or illness, rather than bad habits, a private lender might make an exception
You can also run the numbers on a Federal Housing Administration loan, which requires only a 580 score. You'll pay a point upfront, plus an annual premium of about 1.1 percent of the loan value for the first five years, but you're likely to get a better rate than you would for a traditional loan.
