Getting a loan approved for a well-qualified homebuyer used to be almost a formality, but not anymore, due to the mortgage crash of the last few years, we’ve seen a dramatic change in the way home loans are underwritten.
Going from the infamous liars loans, I mean “Statement Income” to now “Full Documentation” for each individual loan has had a tremendous impact on the real estate industry because it narrows down the already small pool of potential home buyers. But is there anything a home loan applicant can do to make the process easier and give them a fair chance of being approved for the loan?
Loan officers now play detective, and their job includes fraud prevention. They have been extensively trained to read and analyze tax returns, bank statements, application forms, job evaluations, and written explanations. If you are ready to open your soul, here are 7 steps to prepare yourself for such a test.
1. Declining earnings – As businesses reduce the size and number of employees, and sometimes reduce the number of hours worked for those who stay, only the lowest current earnings will be considered. This situation actually creates a red flag for the underwriter who would now question if the company the applicant works for is going out of business, this investigation can set the entire process back.
2. Credit Report – Long before homebuyers apply for a loan, they should be very careful about how many inquiries are made and for what reason, they should keep documentation to show the reason for the inquiry or if they had any dispute for items displayed. in your report. Minimum FICO scores are around 620.
3. Continuous Work History: Buyers should be prepared to explain in writing every gap in their employment in the last 2 years that lasts more than 2 months, more than 2 months without work, and the loan is denied.
4. Bank Statements and Deposits – Any large deposit in the buyer’s account in the last few months will raise a red flag for lenders, they will ask where it came from and why, they call it a “paper trail” so be sure. that you can explain and prove it. Any “insufficient funds” notice on borrowers’ bank statements is bad, almost fatal to the loan being applied for.
5. Buyers Tax Transcripts – Since no one trusts anyone anymore, the lender will ask the IRS for a copy of your tax returns for the last 2 years. The lender wants to see if he has paid Business Expenses and/or Business Losses, for example. The form number to remember here is: 4506T
6. Lower Debt to Income Ratios: Most loans are now screened via a desktop underwriter, the rule of thumb is a maximum approval ratio of 45% of income. However, the borrower must have extremely large compensation factors to even try for a higher approval rating, but it will never exceed 50% again.
7. The Appraisal… or Appraisals – As of May 2009 appraisers are under a new government rule called HVCC. These rules have created more havoc for real estate agents than any other factor. Low appraisals are now the norm and buyers sometimes have to pay for more than one appraisal if the first one is low and the seller can negotiate or not, moving to another property means another appraisal with no guarantees.
Even if you’re not thinking about buying a house right now, start putting all your papers away, clean up your credit, and be careful who you sign with. Don’t request a credit report too many times, if there are problems on the report be sure to document your dispute and keep a neat and clean file for future reference.
If you’re trying to get money for a down payment from friends or relatives, start early enough to show that those funds have been in your account for a while. Unfortunately, you must go through this process before you can enjoy the fun of looking for homes to buy.
If during your first loan application meeting, the loan officer begins with the following sentence: “You have the right to continue renting, anything you say or give us could be used against your dream of owning a home, if can’t pay this loan.” , no one will ever lend you anything…” don’t run! It’s simply the new way to get a mortgage loan.
You are found guilty of not having enough money, income, or credit until you are proven worthy of a home. Once you pass this test, you can call me and I’ll put you in touch with a Professional Realtor in your area who will help you…get home!