When you apply for a mortgage, banks look at your debt-to-income ratios (DTIR), to determine how much they think you can afford to pay for your home. They also look at your total debt, including car loans, credit cards and student loans. If you have trouble getting a traditional loan, there are several types of band-aid loans that might help you buy your house.
The first step is to learn what your borrowing options are in this situation. Mortgage brokers who work with many lenders, will know which ones are more flexible in dealing with your credit issues and may suggest one of these options.
Band-Aid Loans If Bank Financing Isn't an Option
- Adjustable rate mortgages aren't ideal because your interest rate will rise in the future, but they might be your best option to lower your DTIR to qualify for a loan. Plan to refinance and make sure you know when your payments will increase, and by how much.
- Consider having a parent co-sign to get approved for the house you want to buy. Accelerate paying off other debt to lower your DTIRs, and whatever else you'll need to refinance within a few years.
- Sometimes putting one person on the loan, will solve the problem. Depending on the state you live in, it may be possible for one person to hold the loan, while two people hold title to the property.
- Borrowing from your 401K isn't a great option, so tread carefully. Make sure you understand the tax implications if you change employers before this temporary loan is repaid.
But wait. Before you go down this path you should step back and decide if you're really ready to buy a house? and if it would make more sense to find a house with a lower price tag, one you can afford without using any of these band-aid loans.