The challenges consumers have faced in recent years in procuring a mortgage may be coming to an end. Here are four major changes making your mortgage easier…
Landlord History-until recently, in order to qualify for conventional loan financing you needed to show a history of being a landlord for the most recent last 24 months. The reason this guideline was in place was to ensure, that experience as a landlord would support your ability to hold a rental property and any associated debt with it. Now, you longer need a 24 month rental history when using rental income to help qualify.
Converting A Primary Home To A Rental-one of the opportunistic actions stemming from the financial collapse was buying and bailing. A borrower with good income, credit, and debt would buy a new primary home, say they were going to rent out their current home that was underwater, close escrow on the new home, and then let the underwater home go into payment default. This caused major banking losses, and as a result a guideline was created to curb this activity. The guideline that was established required borrowers to have a 30 percent equity stake in the home they were converting to a rental when using rental income to qualify for the acquisition of a new home. The thought process banks held was someone would be less likely to walk away from a home containing significant home equity.
Literally, right now you could be upside down on your primary home, legitimately rent out that home no matter what your equity position with a bona fide rental agreement and paper trailing of the security deposit, and get the benefit of 75% of those gross rents to use as income toward qualifying. This is a favorable option if the borrower’s intent is to keep both homes, as opposed to a contingent sale, or risk not qualifying.
IRS Form 2106/Unreimbursed Expenses- If you wrote off expenses against your income as an employee, this used to hurt your income used for loan qualifying. This was always a red flag for a mortgage company because you’re technically not paying taxes on the full amount of your income. This guideline typically used to affect people in the trades the most, where they would incur dues, subscriptions, uniforms, office equipment etc. that they paid for out of their pocket. No longer is this the case. You can have as much employee business expenses write offs as you would like and the lender will still use your full W-2 income, without limitations. This change now allows you to qualify for more loan than you could have in years past.
Paying Off Debt- this one affects many mortgage loan applications and here’s why. Let’s say in order to qualify for a certain house price your debt load is too excessive. You have the extra cash and you can’t decide to put more money down on the home or pay off the debt to aligning the mortgage payment to your income and other expenses. Before, if you had to pay off the debt in order to lower your debt to income ratio, you actually had to close out the credit account as well. That’s right, even if you have a credit card for example with as little as a few hundred dollars on it, and you were paying it off to qualify, it had to be paid off in full and closed out by close of escrow. You can now still pay off the debt to qualify without closing the credit account.
The fact Fannie Mae and Freddie Mac are making it easier for borrowers to qualify, is generally a good thing as we move into a more exuberant housing market. As more people feel optimistic about the economy, and the overall consensus in consumer confidence is positive, it should come as no surprise mortgage credit will continue to loosen.
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