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February 28, 2020
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Real Estate & Business

Scott Sheldon
Six common mortgage loan scenarios
January 10, 2020

For some people getting a mortgage can be very challenging based on their financial profile. Following are some things to consider if your financial profile needs some extra work and attention

These are not all, but these are just some of the scenarios that can mortgage companies often see…

I don’t want to apply for a mortgage because I don’t want my credit hurt.

This may or may not be problematic. Pulling credit for a mortgage may hurt your credit chances, but it is unlikely as most of the time changes in credit score are based on your utilization of credit which is separate and independent from the mortgage inquiry. Depending on the type of a mortgage loan program you’re looking at —a conventional or FHA—it might not even matter if the credit score changes one or two points.

Can I get a mortgage without tax returns being self-employed?

The short answer is no. If you’ve been self-employed for less than five years you need to show two years of good income. That is income after expenses. If you have been self-employed for the last five years then only one year of tax returns is needed for a Conventional mortgage loan only.

I have a brand-new job, does that count?

It can count, but if you have a brand-new job that is a second job that won’t count because in order to use a second job income you must have a history of managing two jobs together over the last 24 months. A new job where overtime or bonus are earned also must have a two-year average in most cases. A new job income can work, but only the salary or the hourly wage can usually be counted.

Can I buy a house or refinance my mortgage if I’m on maternity leave?

The answer is yes as long as the lender has a start date of when you’re returning to work, and the start date is specifically within 30 days of closing escrow on the mortgage.

I’m self-employed and my business pays my consumer debt.

The guidelines read that if you’re self-employed and your business pays a consumer debt which would otherwise improve your borrowing a power it has to be specifically stated that you must pay the expenses from a business bank account and specifically must be identified on your self-employed tax return identified as an expense. It has to match up.

I want to know whether or not I qualify, what rate I can get and what my points and fees are.

In order to do that the mortgage company has to pull your credit report and you need to provide supporting financial documentation. Well, “it might be, I don’t want to waste the lender’s time” the reality of it is you’re going to have to waste lenders’ time because that’s the only way the lender can accurately give you information, you can decide on whether or not that mortgage opportunity make sense or not.

Scenarios that generally will work for securing mortgage loan financing:

Going from self-employed to W-2 in the same field generally will work pre-application

Showing strong income on your tax returns for the most recent year as long as you have a 5-year history of filing self-employed is generally considered to be acceptable as well.

The minimum credit score you need for an FHA Mortgage with most mortgage companies to actually close escrow is 580. Conventional loans generally need to have a credit score of 680 in order to avoid high-cost loan thresholds. If your credit score is 700 or higher it generally makes sense unless you have 20 percent equity to go with an FHA Loan. Most jumbo mortgage loans have a minimum credit score requirement of 680.

Simply put, provide the documents the lender needs. Let them pull a copy of your credit and give them the documents, then give them the story. Don’t lead with the story first hoping that you’re going to get financing only to provide the documents then comes to find your situation does not fit the box. In the world of mortgage lending, it’s all about specifics. The specifics supported with the documentation must coincide with the story, but it’s about the documentation and the facts, then the story.

 

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.