Mortgage lenders are pretty flexible, but 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 against. 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.
- Age restriction
When buying a condo or a townhouse in a complex that has an age restriction, there are fewer mortgage lender options available. The reasoning behind it is that 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 centre, finding a lender is can be a bit more difficult if there are any issues with your financial profile such as credit issues for instance.
If you are 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 could view these comments as meaning the property will require significant upgrades which may be an issue with some lenders. If it needs some minor 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.
- Mobile home
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. Be aware not all mortgage lenders will finance mobile homes, and if they do there will most likely be a rate premium charged or a limited amortization period available depending on the age of the mobile.
- Previous grow-op
Apart from the obvious reasons why most lenders would shy away from a previous grow-up is the environmental concerns. These types of properties most likely have 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. Keep in mind the property will likely have to have been remediated and come with a current environmental engineers report before a lender will consider financing it.
- 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”. Or, they just may not finance it. Features considered unique could be; the property is zoned a single-family residence but it has 3 separate suites, complete with a kitchen in each suite. Or it’s a log home, or has a large shop attached to the side of the home. Or perhaps the home was a schoolhouse or church before being converted to a single-family residence.
- Condo Conversions
If you’re buying a unit in a condo complex that was previously 100% rentals, that is considered to be a condo conversion. The challenge with financing these types of properties is that there was no condo corporation set up, which means there is usually minimal money in the reserve fund, which equates to insufficient funds available to maintain or make repairs to the condo complex. If work on the complex is required in the short term, any future owners of each unit would be responsible for those costs out of pocket. Lenders generally avoid condo conversions due to the uncertainty that comes with them, instead, they are looking for condos in responsibly run buildings with a healthy reserve fund balance.
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 choose a different property, so make sure your financing condition date gives you sufficient time to find a lender to finance the home.
For all your mortgage needs, contact Jackie at 780-433-8412 or firstname.lastname@example.org. Stay in the loop by following on Twitter @mortgagegirlca.