Today we attended a Realtor’s meeting in Palm Springs, CA and learned what is happening with mortgages and underwriting in today’s lending environment. In reality, the loan process is all about the underwriting and quality control departments. Your loan must pass through certain stages and its closely scrutinized especially before funding which is the final step.
Here is a summary of what we took away from that meeting.
- Sourcing deposits is important. Money used for your down payment must show a source. That means it has come from an allowed source such as savings, payroll, etc. If it just appears in your account and they can’t trace it, it is not allowed. This stops buyers from borrowing the down-payment thus incurring 2 loans and not being able to pay.
- Have income documents going back 2 years especially if self-employed. Be ready to explain anything unusual up front. They look at every detail so if you think you can hide it from the underwriters, think again!
- Be able to explain any large deposits. Again, they look at the source of all monies.
- Make no major purchases just before or during the process especially a car. Its better to wait.
- FICO Scores and Clean Credit. The two links in this line to the left are articles we’ve written on the subject. You can not get a mortgage without a good FICO score and good credit. For help on those and to learn more, read the articles and of course, call us with any questions.
- Income and self employment issues. What you show on your tax return is what gets used as your income. If you’ve hidden some income, it is not used for your loan qualification so keep it all above-board
- Advise your lender of any job changes including the fact that you are about to retire. It really does matter
- If using rental income on a property you own, be ready to go back 2 years or the mortgage on that rental property will work against your approval amount.
- Appraised value vs repair costs. Repair costs of a property will offset the appraised value and decrease the amount you can borrow so be ready.
- Showing you have the required assets to close. You will not get a loan if you can’t show you have the required closing costs up front. For more information, ask your lender or give us a call.
- FHA will lend if your FICO score is under 600 but 5% down is necessary and a gifting of the deposit is not allowed.
- When buying a Condo, they check the HOA solvency and must have underwriting approval. A bank will not want to lend you money for a Condo if the HOA is in deep trouble financially or has lawsuits pending. Ask your Realtor for information.
- Stated income loans are back but with proof via your bank statements. In the past, no proof was required.
- Buy all furniture outside of contract. Banks do not allow an Appraiser to up the value of a property based on the fact it’s furnished.
- Pest work must be done if reported. They will deny the loan if you decide the recommended work from the pest inspection can wait.
How to prepare a borrower for the process.
- Be Patient! Know that this is a 4-6 week ordeal and that you will feel like your privacy is violated when it done. It’s just the facts of life in this new lending environment
- Respond to your lender’s request right away. If you delay, the loan gets delayed
- Don’t blame us or your lender for the process or any challenges. It will be a bit tough. Guidelines set by Fannie Mae and Freddie Mack and unless you are borrowing from a private lender, everyone gets the same treatment.
- One note: If the lender you have is tough to get hold of or does not return calls, I’d think twice about using that lender or officer. you want someone who will be responsive to your needs and requests just as they need you to be there 100%
- Have more than the standard pre-approval letter. Ask for one based on Desktop Underwriting using good back-end scores and solid ratios. What’s involved is your loan officer can run a program that will produce similar results to what an Underwriter sees. This way, there are fewer surprises at the end of the loan underwriting process.
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