It’s no secret these days mortgage companies want you to jump through hoops and provide what might seem like endless amounts of paperwork in order to grant you credit. Here are some things to consider when applying for a mortgage so you can better position yourself for a successful outcome…
Mortgage companies are in the business of making loans. They are not in the business of denying loans. That said, every mortgage originated in America today must be compliant to make sure that loan is deliverable to Fannie Mae and Freddie Mac. If that loan is off by the tiniest of hairs in any way that mortgage company has what’s called a buyback where the end investor forces the mortgage company to buy back the mortgage, resulting in a loss for the company that created and sold off the mortgage. The horror stories about people having to provide additional documentation, 11th-hour changes, all those things are a byproduct of the federal government specifically dictating how mortgage companies can originate loans. The federal government created a rule from the Dodd-Frank Act called ATR (ability-to-repay) which specifically requires each mortgage company to fully document every single ability for that borrower to repay the loan. That means if a bank statement is missing, if a cash deposit is not explained, if there is undisclosed debt, for example, the ability-to-repay has not been met, your loan file will not move until you button up your finances.
The underwriter at the mortgage company is the one that makes the decision. They are the Golden Goose, the Unicorn if you will. They’re the ones that hold all the cards and will determine if you’re going to get the keys to that house. The next person that you want in your corner is the loan officer who thinks like the underwriter and identifies the problems on your file before they arise. If the loan officer that you’re speaking with communicates to you that they’re trying to identify problems before they arise that’s a sure sign that you have a person of exceptional quality working in your favor, which is exactly what you want. You don’t want an order taker at an online lender. You might as well be throwing a bunch of you know what against the wall and hoping that it sticks. Here are some common scenarios that come up on mortgage applications and how to fix them.
You’re self-employed and your business pays expenses. This subsequently would make your debt to income ratio go down right? Well here’s what you need to know:
The expenses that your business pays have to be documented on a business bank account and has to be specifically identified on the tax return in order for the lender to not count these expenses in your debt to income ratio. Can’t provide this documentation? That’s going to increase your debt-to-income ratio. They are forcing you to either borrow less, change loan programs, purchase a less expensive house, or come up with additional cash to pay off debt.
You don’t have a two-year work history. Let’s just say for example that you just came to the United States a year ago, you were working overseas, and you’ve only been filing U. S. tax returns for one year and you don’t have a two-year work history of working the United States.
To make your financial profile less intricate in this situation, you’re not going to get a mortgage for at least a year. It doesn’t matter the down payment or the cosigner or how much money you make or how much money you have in the bank, you must have a two-year work history for every residential mortgage loan program in America that is in alignment with Dodd-Frank.
Note: a full-time student with documented transcripts showing full-time enrollment status can offset the two-year work history requirement.
You have very little down payment and bad credit. It is going to be dependent on what your income is, if your down payment is super low and your credit is for example sub 620 you must have sufficient income to offset those two dings. A down payment can also come in the form of a gift from your employer or any family member that’s a blood relative.
If your situation is such that you have multiple layers of challenges and problems, you need to have realistic expectations about your goals. You must be able to document everything and then explain the details associated with the documentation. For example, a scenario such as a 660 credit score, 10 percent down on a conventional loan, with a co-signed obligation for someone else, that’s less than 12 months old, and hourly wage income with gyrating hours, with two or three accounts in dispute, looking for a conventional loan on a high balance mortgage is one such example. This is not impossible, but it would be classified as a challenging loan. This is the kind of thing that you need to give your loan officer time to help you work through. This way you can get your loan done with ease versus anxiety that can otherwise come working with a 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.