In an October 2008 Senior Loan Officer Opinion Survey conducted by the Federal Reserve Board, about 70 percent of the domestic responders agreed that they had tightened lending standards on prime mortgages. For nontraditional mortgage loans, about 90 percent agreed that they had tightened up their lending standards on these types of loans.

In a recent post of mine, a commenter responded to the jump in California home sales activity and asked “How are these people getting financed?” Today, I’ll take a look at the alternative routes many individuals have resorted to given this current credit slowdown. Most of these alternatives are nothing new or exotic; they have been set in place for awhile, each displaying their own strengths during this tough time.

A Word of Caution - Please Read Before Continuing
First of all, if you’re not truly qualified, forget about it. While low down payment and low credit financing are still available, the days of stated income and misrepresentation are over. If you are looking to finance a home, take a look at yourself before you go out looking for lenders. Make sure your credit is in tact and that your debt to income ratios will make sense. Alternative financing is available, but many lenders have learned from their past mistakes and are unlikely to make them again.

New Home Loans - Think FHA
FHA has emerged quite strongly ever since the credit slowdown, picking up a significant amount of slack left by other lenders. Especially here in California, with the changes in FHA’s loan limits; the modernization of FHA has made it a possible route for mortgage financing. FHA still offers low down payment options and low credit financing; as low as 3% down payments and 580 FICO scores. The difference is that FHA is mostly traditional 30 year fixed mortgages and pays heavy attention to your debt to income ratios. There are exceptions to each of these cases, but FHAs manual underwriters will look for compensating factors to make up for it.

Want to Refinance - Check out Mortgage Modifications First
A popular route that many have discovered is the idea of modifying your existing mortgage rather than refinancing into a new loan. With refinances harder to come by due to tightening mortgage standards and declining home values, mortgage modification provides a balance point for borrowers and lenders. While more lenders are accepting the notion of mortgage modifications, the process is still a bit uncharted and can take a significant amount of time. However, loan modifications can allow changes to interest rates or even principal balances. Each lender will have their own policy, so it is best to check with your specific lender when exploring loan modifications.

Alternative Financing - Explore Credit Unions
Credit Unions have been around for a long time, and with so many brand name banks having trouble issuing loans–some credit unions have been able to fill the void. These nonprofit or not for profit organizations have suffered right alongside many banks, but a lot still show strength since many avoided the subprime mess. An article by the Daily Bulletin stated that credit unions were showing stability in this crisis and are offering opportunities to attract new members with their fixed rate mortgages. In California, there are over 500 credit unions in the League of California Homeowners serving over 10 million people.

It’s definitely a tougher time looking for financing, but alternative options are still around us. For even more options, use our mortgage directory to find a lender in your area.

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