Tuesday, June 28, 2011

Important mortgage underwriting guidelines everyone needs to know

   A happy and a healthy 4th of July to everyone.  In my never ending quest to educate as much as possible, I thought I would find a different and more enjoyable way for people to understand what banks are looking for these days.  Realize that these are not hard and fast rules and there are lenders that do things "outside the box" but this is a very fair picture of what most lenders are looking for.  I hope you like it:

 My borrower has a high powered job at major Wall Street firm and has been there 1.5 years.  His base salary is $150,000 and he receives a 2010 cash bonus of $1,000,000.  Since he was at the firm for only half a year in 2009, he didn't receive a bonus but did receive one at his previous job for $500,000.  The bank will give him credit for all or some of his bonus for 2010 and 2009.  True or False?

Answer: False.  Banks want to see a 2 year history of getting a bonus at the same job in order to be able to use that income.

 My borrower is purchasing a single family home and the financial pedigree looks good.  Contracts have been signed and the borrower locks his interst rate on a 5 year ARM at 3.125% on $1,000,000 loan with a monthly payment of $4,284.  The bank will qualify the borrower with a payment of $4,284.  True or False?

Answer: False.  This may be difficult to understand but borrowers are no longer qualified on ARM products at the actual rate.  Due to the conservative nature of the banks these days, they assume worst case scenario.  After the 5 years of fixed payments are up, the rate may or may not go up.  The risk of going up now plays a major role in how the bank perceives the loan.  They look at it and say-"if it does go up, can the borrower afford it?"  Many banks now are qualifying at 2% above the current rates.  This can make or breal a loan these days.

  A married couple is buying a home and they are getting a gift from the wife's parents.  The gift money is coming from a line of credit the parent's have on their primary residence.  The bank will allow this gift for the purchase of the home.  True or False?

Answer: True.  As long as the money is properly sourced, the gift may come from a Line of Credit.

  A borrower is looking to refinance her home to save money on a monthly basis.  The borrower is currently working at a new job for 5 months with a base salary and no bonus but in the same line of work as her previous job.  Unfortunately, the borrower lost her previous job because the company was downsizing.  She didn't want to jump at the first opportunity that came along so she took her time and landed the new job after an 8 month search.  The bank will let her qualify for the refinance based on her base salary.  True or False?

Answer: False.  If this is a Fannie Mae loan (loan amount below $729,750) the guideline states that you need to be employed by your new company for at least 6 months if you were unemployed for 6 months or more previous to landing the new job.

  Anyone can feel free to comment or ask me any questions they like.  In today's environment, its critical to know as may answers as you can before you begin your mortgage process.

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