Insider Tips
Shopping for B&C Mortgage rates
By Dan Smith

Mortgage Viewpoint:

This month I wanted to respond to a couple who asked me about “B&C” loans. “B&C” is a credit designation used in the industry for borrowers with less than perfect credit. Generally speaking this category is for credit scores between 500-600. They were having trouble shopping and asked for some ideas.

First of all, there is no way to give you an automated quote on any web site. The reason is simple. There is no homogeneous conduit for these types of loans. By that I mean there is no FHA or VA based programs. There is no conventional FNMA (Fannie Mae) or FHLMC (Freddie Mac) programs either. Any site that offers you an automated quote is either guessing at best, or at worst “baiting” you into a quote they have no reasonable basis for giving. Here’s why:

There are basically three categories of B & C loans, based upon income documentation type. You can do the standard “Full Doc” type of documentation, which means you have pay stubs and W-2s available to document your income. If that doesn’t work for your circumstances, the next choice is a “12 months Bank Statements” type of verification. Under this guideline, you will need to submit 12 months of personal bank statements (many investors allow 2 personal accounts OR a percentage of 1 business account to be used). The investor will allow the lender to average all the deposits made over that time frame, to determine your income. Generally speaking, the last type of documentation allowed is “Stated Income”. Under these guidelines the investor will take your word for you income, with some caveats.

However this isn’t enough to calculate your quote yet. Next, your credit report needs to be analyzed by three different standards as well. Most companies create price categories based initially on your credit score. But they also check to see how many time you have been late on your current/previous mortgage, your installments debts (like a car or student loan) and your revolving accounts (credit cards, etc.). Most investors look at just the last 12 months, but some look back over the last 24 months. Finally, they check to see what kinds of public records and/or collection accounts you have outstanding.

The final factor in getting a quote is the “Loan-to-Value” you are requesting. The lower the loan is compared to the value/price of the property in question, the better the rate you will receive, relatively speaking.

To get an accurate quote for a grade B&C loan, you need to have all of this information analyzed by a competent mortgage lender. I personally recommend that you call your previous mortgage banker (if you were happy with their services), even though they lend primarily to “A” credit types. More and more “A” lenders are willing to delve into B&C mortgages, or at least know contacts in that arena. That is because this category, more than any other, is fraught with lenders who price gouge because it is so different and complex to price. SO I think you are better off trying there first!

For professional advice on this or any other aspect of home finance, call Dan Smith. He can reached at 303-674-0201. Or visit him at his web site: www.ColoradoHomeLoans.com


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