You find a home, get excited, apply for a mortgage. Everything looks great and then uh oh,
you get a call saying that your approval is contingent upon you supplying a new piece of documentation that you had no idea was needed and may not be able to supply.
There is nothing more frustrating to newbie borrowers than hearing that they were pre-approved for a purchase mortgage, only to find out at the last minute that they never really qualified for their proposed financing.
Last minute financing issues can be awful. Renters who already gave their landlord notice may find themselves without a place to live. Families moving across the country may end up living in a motel.
Botched refinancing of existing homes may bring its own set of problems with catalytic negative effects like lost deposits on home additions, vacations canceled, parental obligations like tuition delayed or cancelled indefinitely.
Here is a tip — Be upfront about your situation and discuss ways around any issues. For example, work leave after having a baby, leaving a job way before a new one, running up the credit, going through divorce, owning other properties, receiving a gift of funds, etc.
How does a borrower prevent issues from surfacing? You can only do the best you can and here are some suggestions:
Avoid Property Problems
Make sure if the property is a condo or co-op that the building is approved or will be approved by the lender.
If refinancing, start construction after closing the loan.
Define the use of the property correctly (e.g., owner occupancy, investment, 2nd home).
Make sure zoning is not an issue.
Avoiding Income Issues
Generally, loan programs require a two-year work history, especially if overtime or bonus income is used to qualify. Guaranteed Bonus or mandatory overtime may not need 2 years and should be duly noted.
Underwriters may use income for borrowers who are temporarily out of work, or on maternity, family or disability leave. However, there may be some discretion in their calculations over whether to use the regular salary (dependent on employers confirming their employees’ return date) or allow the amount of income actually coming in during the leave.
Self-employed borrowers seek to defer and lower tax payments. Generally self-employed income is averaged over 2 years and a strategy may need to be implemented so that enough income is used to qualify and keep tax payments lowered.
Avoiding Asset Issues
On a purchase, earmark where funds are coming from. Always let the lender know if any changes are made. Always supply the lender with a copy of a cancelled down payment check and the bank statement from where it came. Gifts have to be documented. Stocks must be liquidated before closing if that is a source of monies needed to close. Mattress cash is out, but can be used only if it is deposited into your account months ahead of time. Money received from ‘loans’ have to be well documented.
As they say in the boy scouts, ‘be prepared,’ and I always help my borrowers do just that.
By Carl Guzman
Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. a Zillow 5 star lender. http://www.zillow.com/profile/Greenback-Capital/Reviews/?my=y. He is a residential and reverse mortgage financing expert and a deal maker with over 26 years’ industry experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com [email protected]