Mortgage lenders are pretty flexible, but I’m not going to lie, they are mostly ‘glass half-empty’ types. Mortgage financing is still a business and lenders have a bottom line to protect. The good news for us is they understand we don’t live in a perfect world and there needs to be some risk tolerance in order to lend out money and earn a profit. Apart from the borrowers themselves, a potential mortgage lender is going to scrutinize the property the financing will be secured by. It is still a mortgage, which is a loan secured by physical collateral in the form of property. Instead of talking about all of the features of a home the lenders like, I want to briefly provide details of what the lenders prefer to stay away from.
When buying a condo or a townhouse in a complex that has an age restriction there are fewer mortgage lender options as there is a smaller potential buyer pool when it comes time to resell the property should one default on mortgage payments and the lender has to foreclose and sell the property.
Location, location, location
If the property you’re buying is located in a place that is far from a major city center, finding a lender is sometimes a bit more difficult if there are any issues with your financial profile such as credit issues for instance.
If you’re trying to finance a commercial property through a residential lender, you’re going to hit some roadblocks. The same goes for trying to get a mortgage for agriculturally zoned land through a lender that likes single-family houses located within the city limits. It is important to work with a lender who is interested in financing the type of property you’re interested in purchasing.
Property is in poor condition
‘Handyman special’, ‘ needs some TLC’, ‘perfect for investors’, are a few of the key phrases you should watch out for in the property description. Lenders will view these comments as properties that require significant upgrades. If it needs some renovations, that’s fine as there is a mortgage product called a “Purchase plus Improvement” that caters specifically to these types of properties. If this is the case, talk to your mortgage professional about what else is involved when taking advantage of this niche financing solution.
If it has an axel and can technically be put onto wheels and moved, it’s considered a mobile home. If it’s on leased land in a park, it’s considered a mobile home. Not all mortgage lenders will finance mobile homes and if they do, there be a rate premium or a limited amortization period available due to the age of the mobile.
Apart from the obvious reasons why most lenders would shy away from a previous grow-up is the environmental concerns. These types of properties could include excessive moisture which could result in dangerous mold. If you’re certain the place is for you, you may be able to find a lender willing to work with the property with more money down and a higher interest rate though the property has to have been remediated and come with a recent environmental engineers report.
Unique custom characteristics
A lender willing to finance homes that are considered unique or custom for one reason or another may charge a higher interest rate or require more of a downpayment depending on the “uniqueness”. Perhaps the property is zoned a single family residence though has 3 separate suites complete with a kitchen in each suite. Or perhaps the home was a school house or church before being converted to a single family residence.
This article was not meant to convey that you couldn’t find mortgage financing if you’re buying a property that is detailed above, I am saying the potential lender pool is smaller. After reading this article, if you’re still convinced it’s the home for you, don’t be surprised if you’re expected to have a strong financial and credit profile to mitigate the riskier collateral. Absolute worst-case scenario is you have to pick a different property, so make sure your financing condition date gives you sufficient time to find a lender to finance the home.