Banks want you to believe getting a these days is easier and that may be case if, you’re financial house is in order. Here is what you need to know about how to plan for the nuances, that may illogically arise…
The reality is that if you’re going to be getting a mortgage in today’s lending environment you need to prepare yourself for proving your ability to repay and meeting every threshold lenders have in place to ensure the loans they are making are nothing, grade A investments for the investors buying these mortgage-backed securities. These tolerances and rules are identified by a checklist every underwriter in every mortgage company across the nation is going to be using with some subtle variances, but for the most part if any of these below items are applicable to you (as well as others), make sure you discuss details these upfront with your loan professional so they can make your financial package conform to the underwriter’s checklist…
Your Debt Ratio
Doesn’t matter how great your credit score is or even if you have millions of dollars to pay the mortgage off five times.Your credit score won’t save your debt load! Illogical right? If your payments on housing costs + credit obligations exceeds 45% of your monthly income, you’re not getting a mortgage. That is not without making some changes.
The solution: If you have consumer obligations preventing you from getting a mortgage such as a car payment or even minimum payments on student loans or credit cards for example- time to sharpen your pencil. Can any of these accounts be paid off in full? Can these debts be consolidated for lower total payment? If yes have a conversation with your loan officer and run these ratio numbers upfront with pragmatic figures. Most loan officers can look at your financial picture and advise you what debts need to be fixed to move your file forward with the processing of your loan.
Conditions Create Can Create More More Conditions
This one can be most frustrating for borrowers. Take this example of many …lender requests end of year pay stubs breaking down income for 2014. The end of your breakdown provides less income than previous years, for whatever reason, lender creates another condition based on this information for a letter of explanation about declining income. In short, conditions brought on by a mortgage underwriting can create more conditions based on the documentation provided to support the original conditions.
The solution: A few resubmissions (about 3) to underwriting during your loan process is quite normal. Perhaps canceling the loan and starting over fresh with a clean slate with a clear direction can fix a runaway lending laundry list.
Undocumented Funds
Your money, but may not be able to use it. Make sense? No, but it will if you need a mortgage loan.
Yes, even if you are self-employed this “ask” will still pop up. Any deposits going into your bank account independent and separate from your income, need to be documented, explained and sourced in order for those monies to be considered loan eligible -both in terms of savings post sealing the deal as well as cash to close.
The solution: if possible, try to avoid depositing monies in your bank account that you are unprepared to document. Using alternative asset account without the deposit activity or obtaining documentable gift funds work as healthy alternatives.
Un-reimbursed Employer Business- IRS Form 2106
Your lender will not be ignore this.
IRS allows a taxpayer who incurs expenses in the course of their employment to write off these expenses against their income rather than being reimbursed for these expenses via their employer. These expenses might be comprised of uniforms, educational items, dues, tools things necessary to fulfill their job requirements etc.
Accountants will suggest writing these expenses as a means to offset a tax liability-perfectly acceptable for IRS……at the expense of getting a mortgage. How it is viewed by the lender: these monies comes directly come off your income otherwise used to qualify you for a mortgage payment reducing your chances of qualifying/risking loan approval. Banks average the most two years of these numbers, and use that average of these losses as negative directly to your income.
The solution: Just because IRS allows the deduction does not automatically mean you should take it.
If you have taken these expenses in previous years, it will be counted against your income unless there has been a change. If these expenses are going to continue in the future, your qualifying numbers might have to be adjusted accordingly to offset this income risk.
The key is continuance -if the need to take these write-offs in the future is no longer necessary these write offs will not counted by your lender and would not hurt your borrowing ability. Here’s such an example example let’s say you are working full time as a police officer taking 2106 expenses. During that time you became permanently injured. The likelihood of you needing to take these expenses moving forward becomes unlikely. Talk with your lender.
*Even if you have a documented solid mortgage payment history with a satisfactory rating,there still very well be be a multitude of factors that change the dynamic of your loan, or how you may be viewed on paper.*
Think today’s lending as a one-size-fits-all. These credit guidelines are established by statistical modeling Fannie Mae & Freddie Mac use to predict default and the allowances used in the origination of the mortgage as determinants of what those likelihoods are the result of.
If you plan to get a mortgage, be prepared to tell your lender in great detail about any of the possible additional following items:
- the origin of the gift monies you’ll be using
- deferred student loans
- a second job in existence for less than two years
- a brand-new job or being brand-new to being self-employed
- IRS debt, spousal support or alimony of any kind
- Previous short sale, foreclosure, or bankruptcy of any capacity in the last 7 years
- being self-employed less than two years
- co-signed debt that someone else makes the payment for
Granted, for the people who don’t have any the following items and otherwise have a high credit score, strong equity, some savings, as well as a handle on payments to income, procuring a loan is a breeze.
As it stands, radical loose lending changes won’t soon be ahead until well into the future. Until then, understand when the lender asks for something that seems peculiar, redundant or unnecessary, it is not the loan professional whom you’re communicating with makes the rules, but rather a greater mass credit standards all lenders must abide by creating a level playing field. Do accept when applying for a mortgage, that what might pass for normal litmus test, does not necessarily carry over in “making sense” to a mortgage underwriter.
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