The traditional mortgage pre-approval process can be brutal for “non-traditional” borrowers such as business owners, investors, or those who can’t meet strict credit or income requirements that conventional bank lenders offer.
These individuals often are in unique financial situations that don’t align with the strict requirements of conventional lenders.
You can take back control of the pre-approval process.
In this article, we’ll discuss common pre-approval challenges, how to navigate the process, and what a private money lender can do to simplify it.
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Common challenges during the pre-approval process
The pre-approval process is meant to help borrowers understand how much they can afford while signaling to sellers that this person is a serious, qualified buyer.
It’s meant to streamline the homebuying process and help buyers make offers confidently.
In reality, non-traditional borrowers, such as business owners, self-employed individuals, or those with irregular income streams, face numerous challenges with pre-approval.
Strict credit requirements
Traditional lenders typically require a minimum credit score, which can be difficult for non-traditional borrowers to meet.
Investors, business owners, or self-employed individuals may have good financial health overall but have not maintained their personal credit scores due to the fluctuating nature of their income.
Some people have faced financial hardships and are in a better place but still struggling with poor scores.
Issues verifying income or employment
Non-traditional borrowers often have complex financial situations, including multiple or seasonal income streams and tax returns that don’t reflect their true income.
They also may have high debt but significant assets or other ways to prove income.
Because traditional lenders such as banks or credit unions rely heavily on pay stubs, tax returns, and low debt-to-income (DTI) ratios to prove income and financial health, non-traditional borrowers may struggle to qualify.
Extensive documentation
Even if non-traditional borrowers can qualify, lenders will often make them provide extensive documentation to prove their profits, losses, tax deductions, and overall financial health.
Some borrowers may find this difficult or impossible to compile, especially if the requirements include multiple years of bank statements, tax returns, and detailed accounting records.
Debt analysis
DTI ratio is an important metric for traditional lenders, who evaluate borrowers’ ability to manage new and old debts.
The problem is that banks don’t consider the nuances of non-traditional income and the expenses necessary for running a business.
Who to contact when denied pre-approval for a mortgage
Suppose you are a non-traditional borrower facing these challenges. In that case, there are a few steps you can take to try to remedy the situation.
Contact the following professionals if you are struggling to get pre-approved for your mortgage loan.
1. Mortgage broker or loan officer
Contact your mortgage broker or loan officer and ask them for advice in navigating your specific barriers to pre-approval.
They may be able to suggest alternative loan products, lenders with more flexible criteria, or additional documentation you can use to prove your income or creditworthiness.
2. Credit counselor
Because credit plays a significant role in the pre-approval process, a credit counselor can offer services or suggestions to improve your credit, including:
- Reviewing credit reports to identify issues and areas for improvement
- Helping you create a plan for paying down debt
- Suggesting alternative strategies for improving your credit, such as disputing errors or negotiating with creditors
3. Financial advisor
Financial advisors can work with you to achieve pre-approval depending on which factors are contributing to your struggles.
For example, they can evaluate your overall financial health, develop a personalized plan, and offer strategies to maximize your income and meet your lender’s requirements.
You have options: Exploring alternative lending options
Of course, these solutions still may not help non-traditional borrowers.
If the only viable answer is to get a job with a W-2 and prove with pay stubs and tax returns that you can qualify for a mortgage, you’ll need an alternative solution.
Fortunately, hard money lenders fill the gap left behind by traditional institutions.
Hard money loans vs. traditional loans
You shouldn’t have to fit into a box to qualify for a loan.
Marquee Funding Group is a full-service mortgage banking firm specializing in the origination, investment sale, and servicing of privately placed real estate loans—more commonly known as hard money or private equity loans.
But what is hard money?
- Hard money loans: Secured by the property’s value rather than the borrower’s creditworthiness, resulting in faster approvals with flexible terms
- Traditional loans: Approved based on a comprehensive assessment of the borrower’s credit score and financial health, with extensive documentation requirements and a longer approval process
Does hard money require pre-approval?
Instead of strict requirements, hard money lenders will evaluate the property’s current and potential value after planned improvements and the borrower’s experience and repayment strategy.
They will also want to see some financial documentation and a credit score, but they will consider the borrower’s full situation rather than ticking boxes for qualification.
And forget about a formal pre-approval process—using years of real estate and lending experience, hard money lenders can quickly evaluate the property and the borrower’s situation to decide on approval.
Situations where hard money is ideal
Hard money loans are ideal for real estate investments, unique properties, self-employed borrowers, and quick closings, including:
- Fix-and-flip projects
- Property auctions
- Bridge loans
- Unconventional properties
- Irregular income
- Time-sensitive deals
- Emergency repairs
- New construction
Borrowers can access both short-term and long-term options with hard money loans.
Evaluating hard money lenders
Not all hard money lenders are created equally.
How do you find a reputable hard money lender?
Start by:
- Asking for referrals
- Researching online
- Reading reviews from previous clients
Once you find some, contact the lenders to ask about their qualifications and experience to see if it matches your needs.
Check out Marquee Funding Group’s reviews page to read what our clients say about us.
Submit your loan scenario today
Marquee Funding Group provides accessible real estate financing to borrowers often overlooked by traditional channels.
Our team is highly trained and capable of structuring mortgage options for unique business and owner-occupied loan scenarios.
Ready to work with us? Submit your loan scenario now!