THE ABC’S OF HOME FINANCING 

By Rob Suling

There are four major items in reviewing a loan file for approval:

CREDIT…what is your credit score?  Are there things to fix before you can buy?

Everyone assumes that the SCORE is the sole determiner in getting a loan.  However, the credit score is only the “Borrowers’ credit history for dummies”.  The report tells the full story.  Good originators look at the entire credit report to see what story it is telling.  A lower score with 1 and only blemish can be worked around but a higher score with a history of non-consistent payment, will not be approved.  Underwriters look for the underlying story.  What happened?  Why did it happen?  If it was a fluke scenario generally underwriters try not to hold it against a borrower.

EMPLOYMENT…does job hopping hurt?  How long do I have to be employed before I can buy?

Employment is a very important piece in the puzzle in today’s mortgage puzzle.  Where 1 in 11 are unemployed, banks have become very concerned about job stability.  If a prospective borrower stops one job and there is a 30 day gap in employment, most lenders will require they be on the new job for at least 6 months before the income is useable.  Most lenders will also require at least 30 days of paystubs if someone has recently moved employers, however, there are some exceptions.  This is also the number one reason lenders today do not issue commitment letters.

ASSETS…Is a gift my money?  How long do I have to have the money in the account?  What is seasoning and what are reserves?

On each application, we go through every page of every asset account we receive and the borrower must explain any deposits into the accounts that are not payroll.  This is a Federal Requirement and any unexplained deposits are to be reported to OFAC (Office of Foreign Asset Control).  Most outside deposits come from gift monies from relatives but not all loans allow for gift funds.  Many times this can be explained by borrowers simply moving funds from one account to another, but we have to paper trail all movement.  This one issue probably occupies at least 20% of a loan processor’s day. 

DTI/INCOME…How much can I buy?  What is counted in DTI?  How do they calculate my income?

Another major component of qualifying a borrower is calculating any business expenses from their most recent Federal Tax Returns.  Any business expenses claimed on a borrower(s) personal Federal Tax returns will directly impact their gross income.  For example:  If a borrower(s) annual income is $60,000.00 and they claim $20,000.00 in business expenses, the borrowers useable qualifying income now becomes $40,000.00.  Some lenders even apply this logic with Married Couples Filing Jointly.  Assume Mr. Smith takes a loss on a joint return.  Assume Mr. Smith is not on the loan.  This loss is held against Mrs. Smith as she tries to purchase a home, even though it is her husband’s loss it is claimed on taxes as their loss.  Additionally, part time income/2^nd jobs can only be used if there is a history, generally 2 years, of working in that position.  The same is true for both self employed, commissioned, and bonus income.

HAVING SAID ALL OF THIS, PLEASE CONTACT ME DIRECTLY.  SCENARIOS HAVE MANY VARIANCES BASED ON SPECIFICS SO PLEASE CALL WITH ANY QUESTIONS.  JUST WANTED YOU ALL TO KNOW WHAT OBSTACLES WE FACE AS WE APPROVE THOSE LOANS.

Buying a home is an exciting time!  Make sure you proceed with the mortgage that is right for you!  What works for your neighbor may not work for you!  These are all questions that a mortgage professional should gladly answer for you.

CALL ME ANYTIME!