8 Places To Go If Your Mortgage Lender Says No

New mortgage rules draw specific lines as to whom should and shouldn't get a mortgage.  If your lender says no or you know you fall outside the new lines for obtaining a mortgage, here are 8 alternative sources.  HouseLogic.com came up with this list, and also provides links to the criteria lenders use to evaluate whether you qualify for a mortgage loan.  NAR predicts that the new mortgage rules may cut out 5-7 percent of borrowers from the market, and the rules have eliminated balloon loans and interest-only loans.

In a nutshell, here is HouseLogic.com's list of alternative options for obtaining financing for the home buyer:

1.  Your State Housing Finance Authority

State Housing Authorities often give you a below-market interest rate or the option of putting down as little as 3%.  However, you’ll likely have to agree to complete a financial education course and provide a detailed breakdown of your income.

2.  A Small Bank

Banks and credit unions that have less than $2 billion in assets and make 500 or fewer first mortgages don’t have to follow the same rules as larger lenders.  But, small lenders can charge higher fees and interest rates than big banks, which they need to do if you have a tiny loan amount, because some fees, like a title search, cost the same no matter how big or small your loan is.  

3.  A Government-Guaranteed Loan

The new rules set a clear line for how much of your income, max, you should be using for debt: 43%. If you’re above that limit because you have too much debt or not enough income, there’s a work-around.

You can go over the 43% limit if your loan is guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration, the VA, or the U.S. Department of Agriculture’s rural housing loan program.

4.  Community Development Non-Profits

Nonprofit lenders who work with low-and moderate-income borrowers don’t have to follow the new mortgage rules. As long as they don’t make more than 200 loans a year, they can create special loan programs to help the people in their community.

5.  Homeownership Preservation and Foreclosure Prevention Programs

If you’re underwater on your mortgage, meaning you owe more than your home is worth, you can get still a loan from a foreclosure prevention program or a homeownership stabilization organization. Because these groups have a history of knowing how to help troubled homeowners, they don’t have to follow the new mortgage rules.

6.  A Safer Loan

If you’re in a dangerous, unfair loan right now and you want to refinance into a safer loan, your lender doesn’t have to follow the eight standards when it gives you a better loan. There’s an exemption from the ability to repay standards when a lender is moving a borrower out of:

  • An adjustable-rate mortgage that’s about to adjust to a much higher payment.
  • An interest-only loan.
  • A loan with negative amortization (meaning the amount you owe can go up even if you make all your payments).

Your new standard loan:

  • Has to have a fixed rate for the first five years.
  • Must lower your monthly payment.
  • Can’t have fees of more than 3% of the amount you’re borrowing.

7.  A Work-Around

If you have enough money such that your bank has assigned you a personal wealth manager, that’s the person to talk to when it’s time to refinance. Your bank will want to keep you as a customer and will find a work-around to fund your loan.

For example, if you’re using more than 43% of your income for debt but you can show you have a lot of money in assets, your personal banker will make the case that you’re quite able to repay your mortgage even though you don’t meet the debt-to-income rule.

8.  Another Kind of Loan

The new mortgage rules don’t apply to all loans. It specifically doesn’t include:

  • Open-ended loans.
  • Timeshare loans.
  • Reverse mortgages and others.
If one of those types of loans will work instead of a mortgage, you won’t have to meet the new mortgage rules.