Five Unfair Reasons Why People Don’t Get Mortgages – and Why a Seller Held Note Helps

One of the big advantages of a seller-held mortgage is that the holder chooses who he wants to lend to. This might seem risky but if the note holder examines applicants intelligently he’ll zero in on the growing class of people who aren’t really bad risks, but can’t get the mortgage they want out of the newly cautious institutional market. Beneath all criteria is a relatively simple principle: Can the borrower afford payments? Financial institutions have to use a “cookie cutter” approach that by necessity, excludes people who can afford a mortgage, but run afoul of one guideline or another.

Here are five reasons why someone might fall into the category of being able to afford a mortgage without being able to get one.

Deceptive Debt to Income Ratio: This generally takes two forms. In the first, the borrower’s debt to income ratio is too high for institutions but his after-debt income is high enough to make payments. This might happen to a high wage earner with expensive dependants. Another situation arises when the borrower is coming off a serious short term expense. Medical bills are a common culprit here.

Entrepreneurship: One of the ironies of being a typical real estate agent is that it actually gets harder for you to buy a house! That’s just one manifestation of a common problem faced by entrepreneurs. Institutions don’t trust self-employment income. Naturally, private sellers should proceed with caution, but when someone with an obviously stable, successful business is left out of the system a seller-held mortgage can be the answer.

Foreign Nationality: If you’re not American you have a couple of strikes against you. First of all, institutional lenders may think you’ll just fly away from your debts, even if you’ve lived in the US for decades. Second, if you’re a more recent immigrant your financial records may not be accessible by financial institutions – or at least, not accessible as far as they’re willing to look. Private sellers choose how deeply they want to investigate and can see how individual situations reveal a foreign national’s true ability to pay.

Sparse Credit History: To get a good credit rating, you need to get into debt. Many people aren’t interested in carrying the typical (high) American debt load or they’ve decided to lead financially simple lives where they save credit cards for extreme emergencies. Sometimes, they only buy what they can pay for in full – until it’s time to move. Homes just aren’t in that price range. They can’t get mortgages because they have minimal credit histories, but they might have a secure, generous income on their side nonetheless.

Tax Errors: This one often catches would-be borrowers by surprise. Either they make a mistake or the IRS does so that on paper, their income looks smaller than it really is. This is a headache to solve. Let’s face it – “swift and efficient” are not the words one thinks of when it comes to the IRS fixing a mistake. Seller-held mortgages provide a way for people to get a new home while they’re waiting for rusty bureaucratic wheels to turn. The borrower just needs records that prove his true income.