If you’re planning on buying a house, you’re probably aware of the hurdles that stand in your path to getting a mortgage. Qualifying for a home loan can be an uphill task, thanks to the strict federal regulations that came into effect in the wake of the housing bust.
That’s especially true if you’re considered to be an unconventional borrower.
While you may have the capacity to make your monthly mortgage payments, most lenders won’t approve your loan if you don’t meet the baseline requirements for a conventional mortgage, including a credit score, verifiable income, and an appealing debt-to-income (DTI) ratio.
The good news is that even if you don’t qualify for conventional financing, there are still several solutions available, including Beyond by Embrace. Before we take a detailed look at some of these alternative solutions, let’s explore a few reasons why you may not qualify for a conventional home loan.
3 Reasons You May Not Qualify for Conventional Mortgage
Most lenders are averse to unconventional borrowers. But what makes you an unconventional borrowe
1. Unclear Source(s) of Income
Your income is one of the biggest factors in determining whether you will qualify for a home loan.
Mortgage lenders prefer borrowers who have both stable and traceable income. That means if you have an unclear, unreliable, or complex source of income, you may not qualify for conventional financing.
This is why many self-employed people are unable to qualify for home loans, despite the fact that they are able to pay the monthly mortgage payments.
2. Bad Credit History
A mortgage lender can — and will — look at your credit history to determine how much of a risk you are.
Most lenders won’t approve if your FICO score is less than 620. And according to a leading loan software company, the average credit score for homebuyers who qualify for conventional financing is 720.
Keep in mind that lenders aren’t just looking at your credit scores, however. They are looking at whether you pay your bills on time and how much revolving credit you have, as well as whether you have any prior bankruptcies and/or foreclosures. If your credit cards are almost maxed out and/or you have a history of late payments, you won’t qualify for a conventional mortgage.
The same is true if you’ve had a recent bankruptcy or foreclosure.
3. Insufficient Employment History
Before you are approved for a loan, your lender will want to know that you can hold down a job. After all, how will you be able to make your monthly mortgage payments if you aren’t gainfully employed?
As such, it’s important to have a consistent employment history of at least 2 years. While you don’t necessarily have to be employed with the same company for at least 24 months, the longer the tenure you have, the more favorably it is viewed.
What to Do If You Don’t Qualify for a Conventional Home Loan
There are several mortgage options available if you don’t fit into the underwriting guidelines of a conventional home loan.
One of the most popular options is a government-backed loan. Government-backed loans protect against loss through a government insurance program. The most common government-backed loans include:
- FHA Loan – Insured by the Federal Housing Administration (FHA), FHA loans were introduced in 1934 to help resuscitate the U.S. housing market following the Great Depression. Part of this program’s appeal is that you can qualify with a FICO credit score as low as 580.
- USDA Loan – This is an ideal loan if you are looking to settle in a less-populated, rural area in the United States. USDA home loans are insured by the U.S Department of Agriculture under its 100% financing program, and are designed to help home buyers with lower incomes in rural areas and certain suburban areas. To be eligible for a USDA loan, your household income should be within the USDA’s specified income limits in your county.
- VA Loans – Insured by the U.S. Department of Veteran Affairs, VA loans are another great option if you are an unconventional borrower. You can qualify with a FICO credit score as low as 580, and you don’t need any down payment. You won’t pay mortgage insurance either. In order to qualify, you must have served in the National Guard, U.S. Military, or Reserves, or currently be a serving member.
If you’re not interested in a government-backed mortgage, or you simply don’t meet some of the requirements, you may want to consider Beyond by Embrace.
About Beyond by Embrace
Beyond is perfect if you are self-employed and have good credit and substantial savings in the bank, but are unable to prove your income in the traditional way most lenders require. Through the Beyond Program, we can use your business’s cash flow on bank statements as a qualification for income, as opposed to what is reported on your tax returns.
If your DTI is above 36%, you may also be a good candidate for Beyond by Embrace.
- You can qualify for a mortgage of up to $2 million
- You can qualify with a FICO credit score as low as 580
- You can qualify if 2 years have passed since a your experience a bankruptcy or foreclosure. Most lenders require at least 4 years.
- Eligible properties include non-warrantable condominiums with higher concentrations of commercial units
- You can expect your loan to close in less than 21 days. The industry average is about 40 days.
- Conventional loans normally require Private Mortgage Insurance (PMI) if you put less than 20% of the purchase price as a down payment. The Beyond Program, on the other hand, doesn’t require any type of PMI.
You Have Lots of Options
Unfortunately, if your FICO credit score is below 620, your income can’t be verified, and/or you’ve recently had a bankruptcy or foreclosure, most mortgage lenders will consider you an unconventional borrower and your application will be rejected.
Government-backed mortgages — including USDA, FHA, and VA loans — may be suitable options if you meet certain “loosened” criteria. If you don’t, Beyond by Embrace may be the perfect option for making your dream of homeownership a reality.