Affordability depends on you

In the world of property finance—for homebuying and investing—the loan market offers thousands of lenders and hundreds of financing techniques. Plus, interest rates, closing costs, credit standards, and underwriting guidelines vary among lenders.

Read through the following list of 65 affordability techniques; these techniques only sample your loan alternatives. Because you enjoy a cornucopia of choices, no loan rep (or anyone else) can tell you exactly how much loan (or how much property) you can afford until they work through these and other possibilities. If one lender (or seller) says, "No," you say "Next."

Selected Sources and Techniques to Achieve Affordability

Accessory apartments Adjustable rate mortgages ARM assumptions ARM hybrids Balloon mortgages Blanket mortgages

Buy a duplex, triplex, or quad (tenants pay mortgage)

City down payment assistance




Community reinvestment loans

Compensating factors


County down payment assistance

Create value/fixer-uppers

Employer-assisted mortgage plans

Energy efficient mortgages

FHA assumable w/qualifying

FHA Title 1 home improvement loans

FHA 203(b)

FHA 203(k)

FHA 203(b) mortgages

FHA 203(k) mortgages

Fannie Mae affordable mortgage programs

Fannie Mae Community Home-buyers programs

Fannie Mae Start-up Mortgage

Fannie 97

Financial fitness programs

Freddie Mac central city mortgage programs

Gift letters

Government grant money

Habitat for Humanity homes

Homebuyer counseling centers

Homebuyer seminars, fairs, classes

HUD/FHA foreclosures

HUD homes with easy financing

Interest rate buydowns

Interest rate buy-ups

Interest only mortgages

Lease-options/lease purchase

Lease-purchase agreements

Mortgage credit certificates (MCCs)

New home builder finance plans

Not-for-profit grant money

Option ARMs

Owner will carry (OWC)

Pledged collateral

Private mortgage insurance (PMI)

Reverse annuity mortgages

Second mortgages


Shared equity

Shared housing/housemates

State mortgage bond programs

State VA mortgage programs

Subprime mortgages

Sweat equity

Tenant-in-common (TICs)

USDA Rural Development Loans (formerly FmHA mortgages) VA assumable w/qualifying VA mortgages

VA REOs with VA financing for non-veterans Wraparounds

For the Answers You Need, Go Beyond Automated Underwriting

Some unthinking loan reps just plug your financial information into their computer AU system (automated underwriting) and provide an easy answer. Loan reps who follow a quick and simple approach not only fail to explore all choices, they slight you in a more seriously deficient way. Their "one size fits all" mindset ignores contextual data that explicitly reviews where you are now, where you would like to go, and the best way to get there. Never accept an AU-generated response, until you answer questions such as the following:

  • What are your goals to build wealth?
  • How do your household expenses differ (positively or negatively) from the affordability assumptions imbedded in the AU computer software?
  • Do you spend, save, and invest to achieve your life priorities?
  • How long do you plan to own the property?
  • How can you improve your credit scores?
  • How can you improve your qualifying ratios?
  • What percent of your wealth should you hold in property?
  • What types of real estate financing (other than those offered by the lender you're talking with) might best promote your goals for cost savings or wealth building?
  • What types of real estate financing (other than those offered by the lender you're talking with) might best enhance your affordability?
  • What type of property (fixer, foreclosure, duplex, fourplex, single-family house, condo, apartment building, commercial, and so on) might advance you toward your financial goals?
  • How much would a larger down payment save you?
  • Should you use a fixed-rate or an adjustable rate mortgage (ARM)? Given your situation, what are the risks and opportunities of each? Which choice offers the best trade-off of risk and return (quickest buildup of property equity)?

Although savvy loan reps can help you answer life-planning questions, the majority will not. The majority lack time, knowledge, and incentive to guide you. Loan reps are like car salesmen. They encourage you to buy product(s) they are selling. Would you expect unbiased auto advice from the sales agent at the Honda dealer? No? Then why would you expect unbiased advice from the loan (sales) rep at the Old Faithful Mortgage Company?

Recall the theme of Mortgage Secrets: First, take measure of yourself. Learn your choices. Arrange your property purchase and financing decisions to advance your life goals. A majority of borrowers err because they attempt to minimize their monthly payment rather than maximize their wealth.

Most lenders compare income to monthly payments, but you need more depth, more vision. Decide for yourself: Should you buy more (or less) property than an AU system suggests? Should you borrow more (or less) than this lender's guidelines recommend?

Practice Possibility Thinking

The folks who urge you to get preapproved for a loan rarely mention that you can choose from hundreds of loan products. Each of these products may vary as to interest rate, down payment, credit standards, monthly payments, mortgage insurance premiums, qualifying ratios, closing costs, eligible properties, occupancy standards, and many other terms and conditions. In fact, banks and mortgage brokers may not offer many of the best purchase and financing possibilities.

Sometimes you can even design and create a financing plan. Though most borrowers choose some off-the-shelf loan product, some lenders (and many sellers) will customize specifically—if you know how to ask, and what to ask for.

As you read through Mortgage Secrets and reflect upon the ins and outs of property finance, askyourself, "Would this ideaworkforme (us)?" Today, financing options exist for nearly everyone who wants to own a home, refinance a home, or buy an investment property. Know the possibilities. Cut wasteful personal spending. Shape up your credit profile. Lift your credit scores. Look for ways to reduce the costs of your loan. Explore the many paths that lead to alternative financing.

As you will see, possibility thinking pays big returns.


How you choose your property and arrange financing can add (or subtract) tens (or even hundreds) of thousands of dollars to (from) your net worth.

Do you think you want to own a single-family house, a condo, or coop? Before you decide for sure, answer this question: Would you instead be willing to live in a fourplex for three to five years if that choice plumped up your wealth by $100,000 or more?

Own a Rental Property; Boost Your Affordability and Wealth-Building

For purposes of loan "preapproval," most loan reps assume that you're buying a single-family house or condo. The loan rep might say that, based on your income and monthly payments, the bank would loan you $200,000. If you've got $50,000 for a down payment, you could look at houses (or condos) in the $250,000 price range.1

Now see how much more you could afford to borrow if you bought a fourplex, lived in one unit, and rented out the other three. Since your rental income from three units will expand your borrowing power, you could buy a property worth say $600,000 (instead of $250,000).2

If each of these potential properties appreciates at 4 percent per year, and if after five years the mortgage balance on each falls to 92.5 percent of the original balance, you can see in Table 1.1 how your equity would build with each property.

The part home, part rental fourplex expands your affordability and boosts your net worth by $173,250 (vs. $70,000 forthe house). The fourplex more than triples your original cash investment. Although specific property

1 Don't concern yourself with the specific dollar amounts used in this or other examples. Focus on the idea or technique. Naturally, your finances and the property prices in your area may run higher or lower than the numbers used as examples throughout Mortgage Secrets.

2Mortgage Secrets discusses the exact numbers in Chapter 2.

Table 1.1 5-Year Equity Buildup

Single-Family House Fourplex

Purchase price Amount financed

Appreciated value @ 4 percent p.a. Mortgage balance year five Equity

Original down payment Investment gain

  • 250,000 200,000 305,000 185,000 120,000 50,000 70,000
  • 600,000 550,000 732,000 508,750 223,250 50,000 173,250

results vary, this example shows the powerful wealth-building effects of leverage (OPM). With the fourplex, you employed other people's money to create your productive money.

Other Wealth-Building Ideas

Later chapters further show how your property purchase and financing decisions will impact your net worth 5 to 20 years in the future. You will learn to evaluate mortgage prepayments, short-term mortgages, fix-up properties, bargain-priced properties, foreclosures, real estate owned (REOs), and low-interest-rate financing.

Few homebuyers or investors compare thoroughly. Most people figure that their property will appreciate. Eventually they'll make a fair amount of money. No doubt, history proves them correct; however, history also shows that buyers who weigh and consider a range of property and loan choices can build much larger investment gains.

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