Getting a mortgage loan in 2018 is still a very bureaucratic and compliant process. People getting mortgages today are still paying for the sins of borrowers’ past. Here are some things to consider…
1. You must be able to document and specifically show all forms of income period. While it is true some things can be stretched such as self-employment income, it’s still a very tight world of credit. If you’re self-employed you can provide one year of income tax returns if you’ve been in business for the last five years. Don’t have your most recent income tax return filed yet? Provide a copy of the unfiled return at the mortgage company to approve the loan with the unfiled returns since it’s due in October 2019 anyway. If you’re any employee, you’ll also need to provide W-2s and pay stubs and the mortgage company will need to obtain a written verification of employment. A good thing however that has changed recently is you can get a mortgage as a W-2 employee / wage-earner with an offer letter and a verification of employment, no need for you to be on the job for 30 days anymore with a pay stub.
2. You must be able to document and specifically source the monies used in the transaction. FHA Loans require explanations on all monies regardless if that money is being used for the transaction. Conventional loans are flexible where the monies must be used and only need to be sourced. Here’s a quirky example, let’s say you gave your child a $100k but didn’t create a note between you and that person, recently placed that money back into your account, then you try to buy a house and then the lender asks where that money came from. Let’s say you’re buying a rental property which does not allow gift money, then you have a sourcing problem. The solution is wait 60 days for the monies to season in the bank or find another way to get a new down payment, so the unsourced money is not a roadblock.
3. You have student loans and FHA Loans do not mix. This is the worst FHA guideline known to the lending industry. The FHA guidelines require the mortgage company to use the greater of 1 percent of the total student loan outstanding balance or the total monthly amortized payment regardless of whether the loan is in deferment or income-based for qualifying. That means for example if you’re paying $100 a month for a $100,000 loan, the lender must use $1,000 a month which is 1 percent of $100,000 or they must use the specific amortized payment based on the term of what it would be and the only way that this can be documented specifically is from a letter from your student loan servicer. So, in this situation if you have student loans either get the letter from the servicer right out of the gate or go with a conventional loan.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.