Mortgage Loan Underwriting: Homebuyers Must Get Pre-Approved With Income Fully Documented And Verified

7 09 2012

Underwriters will look carefully at applicants exhibiting wide fluctuations in income, which is not uncommon with real estate agents and others who earn commissions. As a rule of thumb, the bank prefers to see income fluctuations stay within a 30-percent band, year-over-year. When income fluctuates 30 percent or more over a year, underwriters will need to really understand that, and understand how to best calculate income.

For these applicants, as well as any applicants that have an unusual credit or income issue, the bank encourages the addition of a cover letter to the application to explain what’s behind the issue. The more information and explanations, the better the credit decision that can be made.

Home buyers are encouraged to get a pre-approval before they make an offer on a house. A pre-approval is issued by an underwriter, so it has a relatively strong correlation to the loan the applicant can actually get approval for. As long as the applicant follows up that pre-approval with documents that validate the income and other assumptions made in the application, it’s typically a smooth process to loan approval. A prequalification letter is a more informal estimate of what the borrower can afford and isn’t issued by an underwriter.

For more:

FHA 203k Renovation Loans: What Is The Step-By-Step Process For Loan Approval?

4 09 2012


FHA Loan Underwriting: Social Security And Disability Income Must Be Verified To Continue For At Least Three Years; Award Letters With “No Defined Expiration Date” Will Be Considered “Likely To Continue”

4 09 2012

Homebuyers Face Tough Underwriting Restrictions As Mortgage Lenders Practice “Defensive Lending” To Avoid “Buybacks & Fines” From Federal Agencies

7 07 2012

“Defensive lending is the mortgage equivalent of defensive medicine…rather than more medical tests, mortgage lenders are adding underwriting requirements and program restrictions to avoid overstepping a sometimes ambiguous line” that will trigger penalties from Fannie, Freddie or FHA…”

Even minor technical infractions in underwriting or documentation can cause “buyback” demands by Fannie or Freddie when loans go into default, with costs per loan for the lender sometimes soaring to hundreds of thousands of dollars. Plus the Justice Department is putting pressure on major banks to pay millions of dollars to settle allegations of systemic flaws in their mortgage practices — settlements the banks consent to not on the merits but to avoid protracted litigation and hits to their stock prices.

Both the Federal Housing Finance Agency, which oversees giant investors Fannie Mae and Freddie Mac, and the Federal Housing Administration, which runs the low-down-payment FHA program, are considering steps they might take to persuade lenders to open the mortgage spigots a little wider. Together, Fannie, Freddie and FHA account for more than 90 percent of all home loan funding. The focus of their little-publicized reform projects: the “overlay” rules many lenders have adopted that lump extra fees, larger down payments and higher credit-score requirements onto home loans than Fannie, Freddie or FHA require.

For example, Fannie and Freddie may accept FICO credit scores of 660 to 680, and FHA will approve applications with scores as low as 580. Yet lenders originating loans for them often want to see scores 100 points higher. Another example: FHA recently inaugurated a “streamline refi” program designed to encourage widespread refinancings for borrowers with good payment histories by offering low mortgage insurance fees, no appraisals and no credit checks.

For more:

FHA Mortgage Underwriting: HUD Rescinds New Rule Requiring Collections & Upaid Bills Over $1,000 To Be Paid Off

29 06 2012

“…policy change would have affected borrowers whose national credit bureau files have one or more collections or disputed-bill accounts where the aggregate amounts were $1,000 or greater…if the now-rescinded rules had gone into effect, as many as one in three FHA loan applicants would have had difficulty being approved…”

Under the withdrawn plan, borrowers with collections or disputed unpaid bills would have been required to “resolve” them before their loan could be closed, either by paying them off in full or by arranging a schedule of repayments. In effect, if you couldn’t resolve the outstanding credit issue, you might not be able to obtain FHA financing.

Disputed bills are commonplace in many consumers’ files but may not indicate serious credit risk. Rather, they might simply be a disagreement between merchant and customer over price, quality of the product or the terms of the credit arrangement. Open collection accounts are also common but tend to be viewed more ominously by lenders since they often indicate nonpayment over an extended period. Unpaid creditors frequently charge off unpaid accounts, then sell the files to collection agencies that pursue the customer and report nonpayments to the national credit bureaus: Equifax, Experian and TransUnion.

For more:

Foreign National Mortgage Programs Allow For Non-Resident And Non-U.S. Citizens To Purchase Owner-Occupied And Second Homes With Condos Included

7 09 2011

Foreign National Loan Program includes Non-Resident and Non-U.S. Citizens borrowing for second homes, extended to all countries, not just Canada. The following are required guidelines:

  • Maximum loan amount $417,000
  • 30-year fixed rate mortgage
  • 30% down payment required from borrower’s own funds and must have 6 months reserves in a US bank before closing
  • MAX LTV 70%  – NO GIFTS
  • Must have 24 months of credit history
  • Income amounts must be converted into US dollars
  • Credit report must contain four (4) trade lines
  • 700 credit score minimum required
  • 36/45 DTI
  • Single family homes and condos allowed
  • Property must be in an area where second homes are common and customary
  • Can not own additional US property
  • Borrowers with diplomatic immunity are ineligible

Low 30-Year Fixed Mortgage Rates Not Reviving The Housing Market As Homeowners Do Not Qualify For Refinances

15 08 2011

The turmoil in the financial markets has been pushing mortgage rates lower. Thirty-year fixed-rate mortgages have now fallen to about 4.3 percent, which is very close to the lowest level on record.But many Americans can't qualify for those low rates, and analysts say these historic interest rates aren't likely to do much to help the housing market.