THE TRICKY ISSUE OF EMPLOYMENT

                                                                                                                lucystore.com

  Whether you are a line worker at a chocolate factory or program computers from home, with a couple of exceptions, being employed is a requirement of  mortgage lending.  I know that sounds like plain old common sense, but I get questions, lots of questions about employment. I want to take a few minutes today to go into detail and answer some of the more frequent questions I hear about employment.

  To begin with - - the most basic component of this discussion, employment, is required to obtain a mortgage loan with these exceptions:

1) Retirement with retirement income

2) Social security or  disability income

3) investment income

  You will note the one thing these three have in common is an income stream and continuity. Lenders don't gamble on situations where the income stream may dry up a year or two down the road.
If you are someone who has a large amount of money saved or invested and aren't working, obtaining a mortgage through a mortgage lender is unlikely, unless your income is derived from your investments. There are investment companies that do offer secured mortgages based upon the investment portfolio, so if you are one of these folks, contact your financial advisor. I know that sounds unfair, particularly if you have enough money stashed away to buy the house four times over- - but if that is the case paying cash may be a good option.

  Okay, so all the rest of us who aren't independently wealthy need to have a job.  But that leaves quite a bit of room open for discussion as there are various types of employment - - full time, part time, seasonal, temporary, and self employment.  Let's examine each of these in turn to see what the requirements are:

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Full Time Work:  Full time work is considered the gold standard for mortgages.  Typically full time is defined as 35+ hours per week or a salaried position.

Part Time Work:  The number of hours you work on a part time job doesn't really matter as long as you have held that part time job for over two years. That is the only way the income can be counted.  It is the same with seasonal positions-such as snow removal.  There has to be a two year income history.

Temporary Work:  Since the Great Recession there has been a large uptick in temporary workers. Some of the positions are low paying, but many in our area fill vacancies for better paying employers such as Subaru, Wabash National, Caterpillar and others.  In fact, these jobs are often the gateway into these industrial companies.  Most lenders require two years work at a temporary job or company prior to allowing the income as the basis for a mortgage loan.  However one of the niche lenders we use only requires one year at a temp job before the borrower is eligible.  Good to know.

Self Employment:  There is a whole different set of rules for self employed people.  If you are self employed you will need to show two years of tax returns and a profit and loss statement for the current year showing a net profit.  The net profit is typically averaged to obtain the income.  Accountants often show lower profits for tax purposes.  Unfortunately what works for the IRS doesn't always work for lending.  The average of the net profit will have to show enough income to meet the debt ratio for the home purchase.  If you are self employed, have been taking losses, and think you want to do anything with regard to a mortgage loan, you will have to begin preparing two years out.

thisismoney.co.uk

  A couple of other situations also need to be addressed.  One is probationary periods.  Many jobs have a probationary period in which the employer can assess the employee's ability to perform the tasks for the job and has the leeway to terminate the worker should they not meet expectations during the probationary period.  For that reason, mortgage lending requires that all probationary periods for a new job be completed prior to final sign off on a mortgage loan.

  In addition, experience or length of time doing a particular type of work is also examined.  For those who wish to switch jobs prior to or while purchasing a home, it is best if the new position is similar to the old position in nature.  For instance, a person with retail sales experience might want to stay in the sales field rather than taking a job such as teaching that requires a completely different skill set. If that occurs the lender might require six months to a year on the new job.  However, a new graduate who had accepted their first teaching job would be eligible to obtain a mortgage after being on the job thirty days as they no doubt had education immediately prior to accepting the job which counts as experience.  So if you have a new job in your field of study in school, your education counts.

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If you want to obtain a mortgage, job hopping isn't the most convincing activity you could be engaged in, even if you are improving your economic circumstances.  I once closed a loan for someone who had 27 different jobs in a three year span- - that was back in the bad old days of mortgage lending, the Wild West where about anything went.  There is no way I could do that again in today's environment. So my best advice to you is if you really want a home, stick with a job for a period of time. It will be easier to get you approved. Lending likes stability.

  Job offers can be tricky as well.  To begin with, the job in question cannot be close ended. For instance many times positions at Universities or research laboratories are contingent on annual funding.  These days no lender will approve a mortgage that the offer letter states the position is subject for renewal on a yearly basis.  Three years is the standard.  A lender will not close a mortgage based on a job offer alone.  The borrower must be on the job, working and have completed all probationary periods and have received thirty days of paystubs prior to closing.

Last but not least are job gaps.  Job gaps must be documented.  What happened? Was the borrower laid off? Was there a maternity leave? Is the new position in the same line of work as the borrower held prior to the gap?

  Two years of job history will be under the microscope-this doesn't mean that you have to have been working for two years, but it does mean if your work history is for less, you will probably want at least 12 months on the job if you accepted your job after high school graduation. As I mentioned before, post high school education counts as job experience if you are working in your field.

This blog has gone into the basics of employment and how it is applicable to mortgage lending.  There are exceptions to every rule as well as different types of loans and different lenders may vary on employment requirements. However, since employment is an exceptionally important component of a successful loan application, an outline of standard requirements should be helpful.

BACK IN THE SADDLE AGAIN...

 

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  There is an old equestrian expression that relates to being thrown ignominiously from your horse and dumped unceremoniously in the dirt.  And that is you have to get right back up on the horse that threw you - - if you don't you will be afraid to ride again.

  Over the course of the last few years thousands of hard working, good people lost their homes to foreclosure or had to declare bankruptcy as a result of the Great Recession.  This situation created a huge disruption in the housing market and in the lives of many ordinary people who were going about their business try to support a family.  Now that economic conditions are improving I am beginning to see a trickle of folks who are inquiring about the possibility of becoming home owners once again.

  The good news is that mortgage loans are available for those who lost their homes in the housing crisis.  Fannie Mae and Freddie Mac now allow conventional mortgages to those whose foreclosure is four years in the past. And by four years, we are talking about the anniversary date of the sheriff's sale that removed the home owner's name from the deed, rather than the anniversary date of the foreclosure filing.  But FHA, VA and USDA have even better news-their requirement is three years from the date of the sheriff's sale.  The same rules apply for short sales.  With most of the unpleasant housing trauma beginning to recede in the rearview mirror, we are beginning to see some easing by lending so that consumers can once again re-enter the market.  And let's face it, if you have ever owned your own home, it is not likely you enjoy renting. But what about... the dreaded...

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 Credit is still a consideration, that is true. The main question being, besides your current credit score of course, has your credit recovered from the time of the foreclosure?

  Many people make the mistake of not opening any new credit once the worst of their financial situation has passed.  What lending does want to see is that you have been able to re-establish credit and use it responsibly.  This doesn't mean that you have to have opened six or eight credit card accounts.  A couple - - maybe three that have been opened for 12 months or more is ideal.  A couple of years ago that was a requirement along with a mid credit score of 640.  That is no longer the case if you are willing to use FHA or USDA or even VA to purchase your home. Conventional lending still requires significantly higher scores unless you have a large down payment-in which case you can find lenders who will go down to a 620 score. With government loans more than a few lenders are now accepting scores down to 580.  However, judgments must be paid.  Collections and charge-offs incurred in the previous 12 months are frowned up-but old ones may be overlooked.

  The moral to all this is that it is time to come out of the shadows.  It is quite possible that you are in a position to obtain mortgage financing again.  I would suggest however, that you obtain your pre-approval from a broker such as Tippecanoe Mortgage. A mortgage broker will have more lenders at their disposal with varying guidelines for the loans than a bank. If you should go to your bank and get turned down, don't take "NO" for an answer.  Visit your local broker to see if they have a lender that might be able to meet your needs.

  Home ownership is down.  Owning a home has always been one of the hallmarks of the American Dream. Get back on that horse and get going!

                                                                                                            pintrest.com

GIVE IT THE TIME IT DESERVES

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  I read a rather astonishing statistic the other day.  It had to do with online inquires to real estate and mortgage loan websites.  The statistic was that the average consumer expects an immediate response to a web inquiry. At best case, the consumer views thirty minutes as a reasonable expectation for a response, before said consumer moves on to another real estate company, agent, or mortgage loan company.

  Wow! Has doing business ever changed in the past several years.  Given the popularity of instant messaging, texting and emailing, it seems that instant answers have become the expectation of the American public.  Whether this is a reasonable or unreasonable expectation, probably depends on the type of business one is engaged in. 

  Let's take cable television for example.  My cable company advertises on line chatting as available 24/7. So if I log on with a question, I do anticipate being able to receive an answer even on a Sunday morning. But that is fair game- the website says there is chatting available at all times. 

  It might be that huge national companies such as Quicken, Bank of America, or Wells Fargo have live 1-800 numbers or websites that someone can dial up an answer instantly, but most of us in the housing industry are local operations manned by your friends and neighbors and folks who live in your community.  We can't be on call 24/7-though I know some real estate agents and loan originators who do take calls at all hours. I don't. And here's why:

  I once answered a call at 3:00 a.m. (thinking it was an emergency) only to discover it was a past client who hadn't been able to sleep because she was concerned about a relative using a lender that wasn't me and wondering if the lender was charging reasonable fees and interest rate. At three in the morning, having been awakened out of a sound sleep I wasn't in any position to give the woman a coherent answer of any kind. I might have been able to tell her my name-but that is debatable. I made the decision that call was evidence that too much availability and familiarity allowed her to think that I was available to ease her stress-even in the middle of the night.  It was a very bad thing-for me at least.

  There was no urgency about the question she asked, other than on her own list of priorities. At 3:00 a.m. my priority is to get enough sleep that I can field any questions that come my way during business hours.  There are few mortgage emergencies that occur at 3:00 a.m., or after 5:00 p.m. or Sundays for that matter.  Our lending sources while they may work weekends, holidays, and after 6:00p.m. from time to time don't answer their phones, the reason being that they are working these extra hours to catch up with demand.  It is highly unlikely I can obtain information on Saturday afternoon that wasn't already available on Friday evening at close of business.

  I have gone through this rather long winded explanation in order to convince you that even though we may not respond to your question instantly-we are very available.  And I want to impress you with this point:  Even though I may not be able to get with you within 30 minutes due to meetings with current clients, closings and loan application activity, I will get with you by the end of the business day.

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So while it is true that operators aren't necessarily standing by, we are available within a  reasonable amount of time.

  And, if I know that a pre-approved client has hit the pavement looking for a home on a particular weekend I do try to be available so the client and their realtor so they can obtain the information they might need to write an offer.

  I don't believe that mortgage lending is necessarily a business in which instant access and a pull it out of my grab bag answers are necessarily good for the prospective or current clients.  There are general answers to general questions such as the income guidelines for USDA loans-but I would be hard pressed to say why that is a Saturday evening question as opposed to a Monday morning question. But whether or not YOU meet the USDA guidelines based upon credit, job history etc. is not an instant answer.  That requires a half hour interview, mortgage loan origination software, and a secure access to credit information, all of which I may not have available to me as I eat a hotdog at the football game.  It is very easy to give an incorrect answer based upon generalities.

  What I am asking is give us some time to respond to you. Most of us aren't set up to answer calls around the clock seven days a week. Obtaining a mortgage and financing a home are very important events and it is important that you know the facts before you make these big decisions.  For most of us buying a home is the biggest financial decision we will ever make-you want to make the right one and you want to allow the time to get the correct answers you need to make that decision.  IF you read this blog on a regular basis you probably have the idea that mortgage lending is complex and the situations of individuals vary infinitely. One answer does not fit all.
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 As for texting, I love texting-but I reserve it for quick bits of information that can be conveyed without lengthy explanation. If I am discussing the ins and outs of various types of mortgages I feel more comfortable with a more comprehensive medium-such as face to face. I know, how old school of me. But, I also think it is a good way to get to know each other and to create a good working relationship.  We are going to be tied together on this home buying thing for 30 days or more.

  However, I know you are busy and you may live out of town and you may not have the time for a personal meeting-that's fine.  We can talk over the phone, exchange emails, forms and faxes.  In fact, I just completed two loans for a client who lives in another state. I never met the man, but because of the phone calls and emails I developed a very comfortable working relationship with him. I am pretty sure he trusts me. 

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The trust thing-yeah, that's kind of important. For you. This is your money we are talking about. We don't have to be as tight as the Flying Wallendas, but you do have to believe that we are working for the same ends and I am looking our for your best financial interest.

 

By all means email me or my company, fill out the online interest form, or give me a call. I will get back to you-just maybe not with an instant message.

 

10 Common Mortgage Myths

                                                                                                4meidaapproved.com


  As with many other subjects, there are many misconceptions about mortgages.  Some of it has to do with the confusion in the many changes that have occurred since the mortgage meltdown of 2008-2009 and some of it is based on assumptions or conventional wisdom.  It is important to separate fact from fiction as you begin to prepare for your mortgage process as doing so will ease frustration and make for a smoother transaction.

1) The Bank always has the best mortgage rates.  That is certainly what the bank would like you to think-and sometimes it is even true.  However, banks no longer hold the monopoly on great rates and fees.  There are many other players in the game including credit unions, mortgage banks, and my personal favorite, mortgage brokers (who have access to money from more than one source). So my advice is to work with the mortgage loan originator who gives you the best service and can deliver what is promised. The fact is, it isn't only about the rate. It also has to do with experience, type of loan and source of money. Most of the time rates are going to be competitive for the same product and borrower profile.

2) My credit isn't so hot, so I have a co-borrower. The days of a well qualified co-borrower being able to lift a borrower with bad credit into home ownership are over.  Credit qualifying is  determined by the lowest middle credit score of each borrower.  If both parties have qualifying scores, the co-borrower may be helpful in an area such as debt to income qualification-but both the borrower and the co-borrower have to be able to qualify credit wise.

3) I know I have to have 20% down which is very discouraging. I will be ready for the old folks home by the time that happens.  The 20% rule hasn't been true for at least 31 years (which would have been 1983 when I bought my first home and put 5% down.)  The rule for conventional lending is 5% down (though Fannie Mae is bringing back the 3% down conventional loan before the end of this year we are told).  FHA requires 3.5% down and USDA and VA are 100% products.  The invention of mortgage insurance (paid on a monthly basis in the mortgage payment) is the method by which lenders hedge their bets on the lower down payment requirements. I look at it as paying your 20% over time rather than when you obtain the loan.  What is important to remember is that you do not need 20% in savings to buy a home.

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4) I have overdraft protection so NSF checks or debits don't matter. Here is where we have a big generational shift.  If a paper check bounces, most everyone knows that isn't a good thing. Not only is there the issue of the creditor not getting their money, there are all the overdraft fees that come along with it. Back when paper checks were in common use you could have as much as $35 per check that bounced charged to your account. A lot of us remember those- playing the float brings back fond memories does it?  But with the advent of debit cards and checking account balances in constant flux due to the computerized nature of banking these days, banks have come up with a new service-overdraft protection.  If you don't keep enough funds in your checking account, don't worry, you pay a small fee and the bank covers your debit with money from a different account. I have had the under 30 set tell me, "It's okay, my bank doesn't count it against me, they say it is not a problem." Sure, for the bank it isn't.  They get to collect a fee every time they "protect" your account.  The laissez faire attitude on the part of banks has given folks the idea that they don't need to keep an eye on the balance in their checking accounts-not carefully anyway. Here's the deal-while it may not trouble you that your bank is taking $8 or more every time you over draft (think of what all those $8 fees could buy when you add them up) it does trouble the mortgage lending underwriting world.  If someone is so cavalier about their checking account that they don't really watch the balance much, what if the debt that overdrafts is the mortgage payment?  If your loan file has some other holes in it such as not much history of saving money or low job time, a few NSF debits can sink the ship. So exercise a little discipline and begin a ledger. Hang on to your receipts and subtract them out of your account. No one's memory is good enough to remember the Starbucks latte they had yesterday, or filling up the tank with gas.

5) I had a foreclosure. So now I have to wait seven years in order to buy a house.  Not at all. You are eligible for an FHA, VA or USDA loan three years after the sheriff's sale that took the deed out of your name. Please keep in mind it is the sheriff's sale, not a bankruptcy discharge date that is the determining factor.  If your house was in a short sale it is three years from the date of the closing on the house. If you don't know when the sheriff's sale occurred, call the county where the property is located and obtain the sheriff's deed. It is a matter of public record and your next lender may ask for it to validate the date of the deed transfer.

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6) The house I am buying appraised for ten thousand more than I am buying it for. I can use the difference as part of my down payment.  No you can't.  Lending works off of the sale price not the appraised value. While it is good news that you have instant equity-all it means during the sale is that you have a good buy. The earliest you can access that equity will be 12 months from closing your loan. Fannie and Freddie require that you use the sale price of the property as the value until 12 months have elapsed.

7) I am getting ready to buy a home and have been shopping around for interest rates. I got a great quote from a lender. I am pretty happy I will get that rate on my purchase.  Actually, until you have a home under contract you can't count on getting that rate.  Interest rates change every day-sometimes more than once a day. Lenders can't lock in your rate until they have an address to marry it to. So if it takes several weeks for you to find and negotiate for your dream home, the rate that you liked so much may be gone. It's not bait and switch, it is just the way the world financial markets work.  Which is why I say, rate is a part of the picture, but not the whole story. Find a lender that you trust and they can keep you apprised of what the markets are doing.

8) Where I go to get my government loan doesn't matter because any lender can originate my loan.
Government loans don't roll quite the same as conventional loans and many lenders who don't originate government loans on a regular basis aren't familiar with the ins and outs of the products. In the case of government loans what you don't know about the product can hurt you.  For instance, in some circumstances, pre-occupancy is given to a borrower if the property is vacant and the borrower is approved and it appears that the loan is going to close in good order. That isn't a problem with a conventional mortgage product.  For FHA loans, it is a huge issue. If the borrower is living in the house at the time of closing, they must have been occupying the premises for 6 months. If they moved in six weeks ago, that will become a problem.  The government loans have some nuances that conventional lending doesn't.  If you are using an FHA, VA, or USDA loan-be sure your lender specializes in those types of loans. It may mean the difference between approval and denial.

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9) I want to buy a house in a few months so I am closing my credit card accounts so my credit looks better.  NOOOOOOOOOOOOOOOOOOOOOOOOOO! Please do not close your credit card accounts!  For one thing, closing your cards will lower your score.  Revolving credit is the most powerful item for good or bad on your credit report.  If you feel that you need to pay some accounts off, please do so, but do not close the accounts. You will need a minimum of three accounts open and they can be a student loan, a credit card, and a car loan if you wish, but do not start closing accounts prior to purchasing a home.

10) My credit isn't particularly good, but I have quite a bit of money to put down so obtaining my loan shouldn't be a problem.  Here is one big change between then and now. Seven years ago you needed either money or credit to purchase a home.  The ensuing changes have made the credit part of that equation much more important than the money.  If you have not established much credit but what you have is good, a solid down payment can help. But if you have poor credit, it doesn't matter how much you put down. Money doesn't cure all as it once did.

  So there you have it, the ten mortgage myths that I have encountered the most recently. As always, if you are considering purchasing a home, get your pre-approval house in order prior to writing an offer on a bricks and mortar house-be sure of where you stand.

TIME TO REFINANCE???

 

 

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 Guess what? Just when we all thought that interest rates were on their inevitable slow increase to what most people consider more normal levels, the news of the world has sent them down again.  With employment increasing, GNP increasing, and profits up every economic indicator was predicting that interest rates would be moving up as well. But bad news from the Middle East, Ebola fears, economic uncertainty in Europe has sent rates back down to levels we saw at the beginning of the year.  Which brings up the question:

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  Why yes it is.  I am continually surprised at the number of people who haven't refinanced.  We have been in an unparalleled situation with regard to interest rates for the past four years. They have been abnormally low.  For those of you who may be new to the housing market a more normal state of interest rates would be in the high 5's to middle 6's - perhaps even a bit higher into the low 7's.  When I bought my home in 2000 my rate was 7.25% and that was considered a low rate.  So if anyone is still sitting on a pre-2010 interest rate in the 5's or 6's, for Heaven's sake -refinance! Now!   Why wouldn't you?

  Well, yes, I suppose there is that. But let us help you make sense out of it all and unboggle your mind.  Perhaps you have been in your loan for ten years and you don't want to go back to a thirty year amortization.  Fair enough-however we can offer terms that will assist you in not losing the equity you have paid off and add more. The fastest way to achieving equity in your home is to lower your mortgage term.

  There may be some folks out there that have adjustable rate mortgages that they acquired in the past few years.  Now might be a good time to lock in that rate as a fixed rate.  While your low adjustable rate may still be in effect, what will your rate be like when it amortizes next year or the year after.

  Did you buy your home using an FHA product in the past few years? Many, many people did due to the prohibitive restrictions of conventional lending. Mortgage insurance on FHA loans is quite a bit more than mortgage insurance on conventional loans. Chances are if you purchased a home since 2010 using FHA you may be able to refinance and reduce your monthly mortgage insurance.

  Did you have a job interruption or financial difficulty back in 2009 or 2010 that made it impossible to refinance? Enough time has passed that you should look again. What about combining an old second mortgage or HELOC into one new loan-now might be the time.

  If you have a VA loan, VA offers a streamline refinance known as an IRRRL that doesn't require a new appraisal or income documentation. Costs can be rolled into the new loan. This is a great way for the veteran to lower his/her monthly payment.

  For those that have paid extra against their principal or who think that their property value has gone up now might be the time to eliminate your monthly mortgage insurance-or take a look at lender paid mortgage insurance programs that will eliminate it by virtue of the loan program you choose.

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Don't make me yell!  

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I hate it when customers are sad-so don't wait on the refinance.  I know you are busy, I know there is are many priorities in your life, but I don't want to have to tell you that the ship has left port.

 

Louisville.com

 

Yeah, don't make me look at that face and have to tell you that rates have gone up so it doesn't make sense to refinance.

 

 





 

 

 

 



WHAT WILL I NEED FOR MY MORTGAGE APPLICATION?

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  Chances are you won't have to trundle your documents in using a shopping cart, but there are certain items that we need from you to document your job, income, assets, liabilities etc.  That only seems logical, right?  We kind of got in trouble with all those low doc, no doc, and no income loans that were all the rage in 2007.

  Unfortunately, I have had more than a few customers comment that they thought that the documentation requirements of mortgage lending was excessive.  This comes out of the feeling that once the customer has given the lender everything they could possible ask for, the lender wants something else-and at seemingly very inopportune moments-say the day of closing.
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 What's up with that is this: you may have heard of Fannie Mae and Freddie Mac. Those two corporations are known as Government Sponsored Enterprises. In other words, Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. (The certain sectors of the economy would be you and me-everyday people.)
 
That clears it up doesn't it? Actually, Fannie and Freddie provide money on the secondary market for more loans-in other words, make it possible for lenders to sell mortgages to make money for more mortgages.  So Freddie and Fannie have a stake in whether or not your mortgage loan defaults. Without Fannie and Freddie it is likely everyone would be required to put 20% down, because without that government backing, private investors would probably not want to offer low down payment loans.  Lending is, after all, about risk. No one likes losing money, not even big corporations.
 
Just to be clear, when Fannie and Freddie say "Jump!" and everyone in lending says, "How high?"  Part of the how high is that Freddie and Fannie want to be sure that every I is dotted and T is crossed before a loan is closed-or rather the lenders do so that Freddie or Fannie won't kick the loan back and require the lender to buy the thing back which in turn could impact everyone on down the line-even you. You might find yourself in a position in which your lender is bugging you for more documentation AFTER the loan has closed. Ignore them at your peril-they could call in the loan and you would have to find alternate financing. That doesn't happen often, but more frequently than most people would ever guess.That is why the documentation requirements seem so nitpicky.

  The following is the basic list of documents that you will have to provide in order to have your mortgage loan processed:

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W2's-the most recent two years - you will note I said the most recent.  They also need to be consecutive-not 2009 and 2012-this year for instance we need 2012 and 2013.

Pay stubs-the most recent 30 days (1 month)

Bank statements-the most recent 60 days (2 months)

Federal Tax returns- the most recent two years

A government issued ID such as a driver's license, passport, or military ID and a social security card (These are items required by the Patriot Act-so no wiggle room there. I lost my social security card doesn't work.)

 The above items are the basics that start out your loan file.  Along the way more items may added such as divorce decrees, child support orders, bankruptcy papers, sheriff's deeds, school transcripts, verification of payments from student loan companies, powers of attorneys, proof of legal entities, the proof of sale of your current home. The list is possibly endless.  Where we can be proactive we try to obtain these items for the loan file prior to loan submission but sometimes the layers of the onion begin to unpeel and it just seems to go on and on. Why do we have to make you dig around in musty old file drawers or moldy boxes in the basement?
 Divorce decrees and child support can impact income, deferred student loans will come into repayment at some point, people signing off on documents pertaining to a loan and a purchase agreement need to be legally entitled to do so...get my drift? No stone can be left unturned that could result in a legal issue with ownership of the property or your ability to repay the loan.

   Just as a word to the wise, substitutions don't work.  Maybe you don't want to get into the storage shed - it just seems like too much work so you try to slip in the W2 you found at the back of the file cabinet instead of the one requested.  Just forget about it. When an underwriter requests an item-that is the item they want. It is kind of like going to a restaurant and ordering mashed potatoes and getting grits. They are both white and kind of dense, but not the same thing at all-not really.

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 And the truth is that I absolutely hate to ask for one more thing when I have asked a borrower for everything but their underwear size, but sometimes in order to get the loan approved or cleared to close we need that one last thing. Those look like a 34 to you?

                                                                                                        polyvore.com


   It is not our intent to drive people nuts with minutiae. Whether we like it or not (and often we don't like it) details, teeny-tiny micro details are the name of the game in mortgage lending. You can and will be denied your loan if you cannot or will not provide what is being requested, so as they say, it is impossible to fight city hall. I know it feels like a type of torture from time to time and even the most qualified borrowers have to submit if they want the money. (I don't suppose that any of you saw that even Big Ben Bernake was denied for a mortgage loan recently.  It seems that he went from a nice safe government pay check to self employment as a consultant and he doesn't have the required two years of tax returns yet. So the amount of money he had to put down, his truly amazing credit score and the fact that he was the Director of the Federal Reserve Bank didn't mean bupkis. If you are being asked for all those items, you are in excellent company. 

   The one thing that I always want borrowers to know is that we don't ask for items unless we need them. That, you can count on.

 

 

 

 

INCOME CALCULATION-IT'S NOT AS EASY AS YOU WOULD THINK

                                                                                                   systenaticrelativestrenght.com
 The trend now is to do online research prior to doing anything...whether it is buying a car, an expensive appliance, or even obtaining a mortgage loan.  What usually happens is a potential buyer drives by a home that strikes them as a property that may meet their needs.  They look the home up on the Realtor's website, get the price and the particulars of the home.  Then they search for a mortgage loan calculator and figure up the payment.  If they haven't spoken to a lender yet, the payment may or may not be realistic as interest rates are subject to credit scores, loan amount, and type of loan.  However, our intrepid buyer may not know all that yet, and sees that the payment is only $20 higher than what he has been paying for rent and believes he can afford the house.  He may be right, then again, maybe not.  There are many times when calculating income for a borrower may be just as vague as calculating the value of that golden egg.  There are so many factors that come into play, the price of gold not withstanding.

  Let's take a look at how lenders calculate income.  This should give you a bit more understanding of how much mortgage may be in your future.

                                                                                                         wearyourbeer.com

  Generally speaking you do have to be employed full time in order to obtain a mortgage. Full time hours vary but 35 hours plus per week constitute full time employment. The easiest calculation to make is for those who are salaried-or have a guaranteed income no matter how many hours they work. So if you are salaried at $60,000 per year, your income for mortgage purposes is $5000 per month. Mortgage calculations use gross pay, or pre-tax pay, not the net amount that is your paycheck. Hourly rates are easily calculated as well. Normally there is a number of hours per week that the employee is expected to work. That is base pay.  The number of hours is multiplied by the hourly wage. Sometimes folks just figure they work 40 hours per week when they work 36.  While it may seem that the difference in income between 40 hours and thirty six hours isn't much-over the course of a year it adds up to several thousand dollars which in turn affects how much an individual can spend on a house so accuracy is important.

  Overtime, bonus and commission calculations have additional rules.  In order to use any of the aforementioned types of income for mortgage purposes the employee must have received them for the past two years with the same company.  This is critical. Often people assume they can use the overtime whether or not they have a two year history or not. In fact, interruptions of employment can be an issue.  Let's take the example of an employee who had worked for the same firm for seven years and receive overtime pay.  Five and one half years into his employment he resigned and took another job.  Two weeks into the new job he realized he had made a mistake and returned to his old company.  A year and a half later when he made loan application, the brief interruption in service was nothing more than a faded memory. He applied stating he had been with his current employer 7 years.  However, when the verification of employment came back, the interruption in service had been noted by the employer.  The lender refused to let his overtime be used in mortgage qualification. His ability to afford the house he was buying was reduced. So you can see by this example, two years of overtime,  means two continuous  years of overtime.

  Another interesting quirk of lending is that if you have declining income in the present year, that is the income that will be used. In other words, averaging is fine as long as your income is growing, but let it decrease and averaging goes out the window. Good to know.

It is usual that someone who works part time inquires about a mortgage loan.  Most people understand that a part time situation doesn't normally earn enough for mortgage qualification.  But there are exceptions. One might be a retired person who works part time in addition to receiving retirement income, or the spouse of a borrower with full time income.  The rule on part time situations is that the position must be held for two years in order to count the income.  This is true in most cases if someone moves from full time to part time within the same company. So don't count on your part time job being allowable income when you are figuring what you can afford.

                                                                                                              thismoney.co.uk

  Self employed borrowers are another category of income that gets special treatment.  The biggest issue with self employed borrowers is that the benefit that their accountants create for them on their tax returns becomes a huge liability when it comes to mortgages. The job of accountants is to minimize tax liability but in doing so, if your accountant has not asked you the question, "Are you planning on purchasing or refinancing a home in the next two years?" he may be doing you a huge disservice. When looking at the income of self employed people, lenders want to know one thing:
How much is your net income.  Not how much revenue did your business take in, but how much net income after all the bills are paid did you receive.  If you are showing net income of $3000 on your taxes, chances are you won't be approved for a mortgage no matter how much your sales numbers were. For self employed folks, that net income has to be enough when averaged over two years to afford not only your house payment, but all your other consumer debt. So if you have been expensing away your profit, you will want a two year plan if you intend to purchase a home in the next few years.  You have to decide, pay lower taxes or buy or refinance a house. You cannot do both at the same time.

 

                                                                                                         studio544.com

I am going to stop right here and toss in a bit of free advice: if you are self employed keep your business and personal accounts separate.  If you drive a truck that is for your business make the payments out of the business account.  Have a separate credit card for your business. Keep a big bold black line between the personal and the business.  It is so much more difficult getting a mortgage loan approved when the business expenses have to be weeded out of the personal expenses. If they are separate we don't have to lump it all into your debt ratio.

  The last bit of information for today is for anyone who files a long form tax return-whether self employed or not.  If take losses or reoccurring expenses on your tax return, they will be deducted from your income. If your spouse is the one who is obtaining the mortgage, if you file taxes jointly and show a loss, the deduction will come off of your spouse's income.  In other words, less buying power.  Keep that in mind and discuss these situations with your accountant.