Mortgage Help   Mortgage Rates Real Estate Credit Foreclosure Tax Mortgage Rates  Mortgage Basics Chapter 1: How much house can you afford? Homeownership Should You Buy or Rent Summary   Chapter 2: Adjustable-rate mortgages ARM and a fixed-rate mortgage Fixed-rate mortgages Understanding the key elements Which type of lender is right for you? Other types of mortgages Subprime Summary   Chapter 3: Your credit score Down Payment How lenders set rates Low down payments Mortgage insurance Your mortgage payment Mortgage Points Summary   Chapter 4: The good faith estimate Inspection and Insurance Necessary paperwork for a buyer Other lender paperwork Paperwork and fees Prequalification and preapproval Special circumstances Summary   Chapter 5: Ten questions to ask Turned down for a mortgage Underwriting What lenders ask Summary   Chapter 6:  Understanding the closing process Escrow Summary   Chapter 7: When your mortgage is sold Avoiding foreclosure Paying ahead Payment changes Refinancing Removing mortgage insurance Summary Special circumstances Some potential buyers face circumstances that cause a lender to reject the mortgage, require additional information to approve it or modify the terms. Many special circumstances are simply circumstantial, including being at your current job less than a year or being self-employed. Here are some common special mortgage situations that occur: A problem appraisal Homes often appraise for a different amount than the purchase price. Sometimes, the appraisal is less than what you agreed to purchase the property for. This can create a variety of problems, especially if you were looking to put down a small down payment and the appraised value is less than you were looking to borrow. If the appraisal is less than the loan amount, you may have to come up with a larger down payment to cover the difference or renegotiate the purchase price before the lender will lend you any money. For example, you are approved to borrow $97,000 to purchase a $100,000 home. You are planning to put $3,000 down on the mortgage. The appraiser reports that the home is only worth $95,000. The lender will not give you more money than the home is worth. You will either have to negotiate for a lower purchase price or pay the original price with more out of your pocket. The most the lender will probably lend you is $92,150. You will have to find the remaining $7,850 cash for the purchase. Buying a condo or townhouse There are special considerations when purchasing a condo or townhouse. What you are purchasing is the exclusive ownership of the interior space of the unit and the joint ownership of the common areas, which include walls, grounds, fences and facilities. A townhouse may include a backyard and a garage. Your mortgage lender will want to take a close look at the complex's financial and physical status to avoid making a mortgage on a troubled property. Most lenders will ask the condo association to fill out a questionnaire that will help the lender understand the property. The lender will be specifically looking at: " The percentage of owner-occupied versus rental units. Most lenders are looking for at least 60% of the complex to be owner-occupied. " Whether or not the construction of the complex is complete. Most lenders require that the complex be 90% completed. " Is there adequate insurance coverage, including hazard insurance? " Is there a reasonable operating budget for the complex? " Is the management competent? " Are there adequate reserves for maintenance and major repairs, such as roofing? You should make sure that the seller gives you the condo documents, articles of incorporation and the bylaws of the homeowners' association. These should include the notifications of any ongoing litigation and special assessments. You will also want to attend an association meeting and read the minutes for the past year. Make your approval by the condo association a condition of the purchase. No-documentation or Low-documentation mortgages No-documentation and low-documentation mortgages are perfect for entrepreneurs or the self-employed, recent immigrants and borrowers who cannot or do not want to reveal information about their incomes. You will pay a higher interest rate for a no-doc mortgage, often ½ a percentage point higher. To be approved for a no-doc mortgage, you will be expected to put at least 20% to 35% down. You must have excellent credit and verifiable assets for closing costs. For a loc-doc mortgage, you must be self-employed for at least two years and provide proof of sufficient assets and excellent credit. Some buyers secure no-doc or low-doc mortgages and then when their financial situation improves, they refinance to a lower-rate, full-documentation mortgage. Low-doc and no-doc mortgages are often called Alt-A mortgages. They are an alternative for a borrower with good credit, or an "A" borrower. Consumers used to be ranked with A, B, C or D loans according to their credit status. Flawed credit problems Most consumers are unaware of their credit history and score. But if you have a credit score under 620, you may have problems finding a mortgage. There are subprime mortgages that are specially designed for borrowers with less-than-perfect credit. They come with higher interest rates and less favorable terms.