Home buyers applying for a loan should be prepared to be screened, x-ray-ed, frisked, sworn, read their Miranda Rights and hooked to a lie detector before their loan is approved no matter how well qualified they think they are. A loan approval for a well qualified home buyer used to be almost like a formality but not anymore, due to the mortgage meltdown of the last few years, we have seen a dramatic change in the way home loans are underwritten.
Going from the infamous liars loans, I mean "Stated Income" to now "Full Documentation" for every single loan has had a tremendous impact on the real estate industry because it reduces the already small pool of potential home buyers. But, is there anything that the applicant for a home loan can do to smooth the process and to stand a fair chance of getting a loan approval?
Today's loan officers are playing detective and their job now 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 get you prepared for such an ordeal, and this is what you are going to look like after the process ---->
- Declining Income - As companies, downsize and reduce their number of employees, and sometimes reduce the number of hours worked for those who stay, only the current lower income will be considered. This situation actually creates a Red Flag for the underwriter who would now question weather the company the applicant works for is going out of business, this investigation can delay the entire process.
- Credit report - Well before home buyers apply for a loan they should be very careful as to how many inquires 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 showing in their report. Minimum FICO scores are about620.
- Continuous Job History - Buyers have to be ready to explain in writing every single gap in their employment in the last 2 years that is longer than 2 months, more than 2 months out of work and the loan is denied.
- Bank Statements and Deposits - Any large deposit into the buyers account within the last few months will raise a red flag for the lenders, they will ask to see where it come from and why, they call this a "paper trail" so make sure you can explain it and prove it. Any notice of "insufficient funds" on a borrower's bank statements is bad, almost lethal to the loan being applied for.
- Buyer's Tax Transcripts - Let's face it: nobody trusts anybody anymore! The lender will ask the IRS for a copy of your last 2+ years tax returns. The lender wants to see if you have had unreimbursed Business Expenses and/or Business Losses for example. The number of the form to remember here is: 4506T
- Lower Debt to Income Ratios - Most loans are now analyzed via a Desktop Underwriter, a maximum approval ratio of 45% of income is the rule. The borrower however has to have extremely great compensating factors to even try for a higher approval ratio but it will never go above 50% anymore.
- The Appraisal ... or Appraisals - On May of 2009 the appraisers come under a new government rule called HVCC. These rules have created more havoc for Realtors 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 come in low and the seller could or would not negotiate, moving onto another property means another appraisal without guarantees.
Even if you are not thinking about buying a house right now, start saving all your papers, clean your credit, and be careful who you co-sign with. Don't go asking for a credit report too many times, if there are issues on the report, make sure you document your dispute and keep a neat and clean file for future reference. If you are trying to get money for a down payment from friends or relatives, start early enough so as 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.
And finaly, if during your first loan application meeting the loan officer begins with the following sentence: You have the right to remain renting, anything that you say or give to us could be used against your dream of owning a house, if you cannot afford this loan, nobody will ever loan you anything, etc. etc ... don't run! It is simply the new way of getting a new loan. You are considered guilty of not having enough money or income or credit until proven house-worthy.
Antonio & Alexia Cardenas
"The Realtors In Motion"
CRS, GRI, E-Pro Certified. SFR (Short Sales, Forclosure Resource) Serving the east shores of the San Francisco Bay, Alameda county: specially the following cities: Castro Valley, San Leandro, San Lorenzo, Hayward, Oakland, Pleasanton & Dublin.
Visit us on line at:
www.listedbyantonio.com or call (510) 326-4263
Call us, We'll come and TANGO with you!