Virtually every borrower has to deal with the matter of qualifying for a mortgage, but what if a lender said, "forget it, we're suspending all qualification requirements today."

In real life it doesn't quite work that way, but there are loan options out there where some or all qualification requirements are waived or modified.

Remember the good old days when loans could be assumed by anyone, no questions asked? Well, amazingly enough, such loans are still out there, and often with attractive interest rates. If you can find an FHA loan made before December 14, 1989 or a VA mortgage that was originated before March 1, 1988 then your have found freely-assumable financing. There is no financial test to assume such loans, but because they are now many years old loan balances may be small. This means that even if you can assume such financing, the rest of the purchase price must come from a larger downpayment, more financing from a lender, or perhaps a loan from the owner, a so-called seller take-back.

But if aged FHA and VA loans are not available, then how about a no income verification loan?

The deal here is that the lender makes you a loan, but does not check your income. This is not an invitation to claim the income of a reigning Hollywood star, instead you must show that you at least earn enough to qualify for the loan.

Why get such financing? In some cases such loans limit paperwork, but the real reason is that some people feel strongly about privacy and prefer not to reveal all their income and assets.

And what if you kind of, sort of claim more income than you really make? Not a good idea. Loans are routinely sold, and loans that are sold are often audited. The new loan holder may check the loan application against credit and tax records. If there's a discrepancy, then big problems can follow. Equally bad, if the loan results in a foreclosure, the lender may send the matter to some very unpleasant attorneys.

But what if you don't mind qualifying for a loan, but instead simply lack the cash or credit needed for a typical mortgage? This is a common concern and one easily resolved: Just look for loans which are not bound by "conventional" loan rules.

For instance, many lenders offer both conventional mortgages as well "portfolio" loans. Portfolio mortgages tend to have more liberal qualification standards, allow bigger loan amounts, or both. Why do lenders offer portfolio financing? Most likely because more flexible loan standards allow more loans to be sold. Also, the lender has experience and feels there is little risk in offering such financing.

The old-reliable, of course, is seller financing. In this situation the owner takes back a loan, sometimes with few of the standards commercial lenders require. Owners may do this to create a stream of interest income, or sometimes to make a home more salable at a higher price. Smart sellers, of course, have loan documents prepared by knowledgeable attorneys and check credit thoroughly.

Another way to beat the problem of tight qualification standards is to consider state-backed loan programs. Such programs often require little down and allow buyers to borrow more than might otherwise be the case. Though typically restricted to "first-time buyers," don't be put off by this expression -- it doesn't mean such programs are only open to those who have never, ever owned real estate, instead it typically means that a borrower has not held title in the last three years.

Lastly, there is the matter of "exceptions." While many underwriters follow lender guidelines to the letter, such guidelines often contain opportunities for some flexibility. For instance, a student just graduating from med school may have debts well into six figures, little income, and yet still qualify for a mortgage. How? An exception. While lenders know that most borrowers could not qualify under such circumstances, they assume the graduate's income will shortly rise, thus making monthly payments tolerable.

While the example of the medical student may be extreme, most loan programs allow for "exceptions" provided the underwriter can justify them. For this reason, it pays to work closely with loan officers and underwriters, supply needed paperwork, and do what you can to assist in the loan process.

For details regarding specific mortgage programs and their qualification standards, speak with your loan officer or realty broker.

Published: January 16, 2001

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