The major risk
is the cost of the loan. Desperate home buyers who are
not selective when seeking an "A-," "B," "C" or "D" loan
may find themselves locked into long-term loans with
outrageous fees and interest rates. "Watch out how
costly they are," said Jon Riccardi, a mortgage broker
with MPR Financial in Albany, Calif. "Some of the quotes
are a little difficult to quote."
Traditional lenders who offer conforming loans are
extremely competitive. They must offer desirable terms
or lose their share of the market. Meanwhile, hopeful
home buyers who were rejected often turn to mortgage
brokers and specialized mortgage lending businesses.
Alternative lending sources not only offer a variety of
loan products but also are more willing to deal with
higher debt-to-income ratios, credit problems and other
black marks on an individual's record.
In cases where negative information on a credit
report may be due to disappear in the next few years, or
a borrower expects their income to increase
significantly, non-conforming loans without excessive
prepayment penalties can be excellent. The borrower can
obtain a conventional loan as soon as they qualify, yet
enjoy the benefits of home ownership and establish
equity in the meantime. Many home buyers engaged in this
process look at these less desirable loans as a penalty
while others are grateful for a second chance. Yet no
one should be so anxious that they sign for a loan with
questionable terms. "The goal of these loans is to pay
them off quickly," Riccardi said. "What I've seen is,
people don't investigate these loans enough and when
they try to get out of it, realize what they got into."
Resource: "How to Shop For a Mortgage," a brochure
available from the Mortgage Bankers Association of
America, 1125 15th St., N.W., Washington, DC 20005.
