This post was submitted by guest blogger and real estate finance expert Sylvia Setash from Acacia Federal Savings Bank. She will be guest blogging advice about mortgage types, rates, and tips on buying and selling. Check out her bio at the end!
My goal is not to scare you. Far from it. My goal is for your home buying experience to be as stress-free as possible. But I am also a believer in explaining why things are the way they are. And that is what I am attempting to do here. Everyone has heard a horror story when it comes to getting a mortgage loan. What isn’t being shared with the general public is the fact guidelines continue to get tougher and more detailed with every passing month. No one is unscathed: not the first time borrower or even the veteran, move-up buyer. If you received a mortgage loan in 2010, the differences will be evident in the required documentation. There’s a threefold reason for the lending lock-down:
- Investors (banks) don’t want the home back in foreclosure
- Insurers (PMI) don’t want to pay claims
- Federal regulators are determined that certain procedures will be performed at certain times in the loan application’s lifeline.
Add to that, when lending is tight, instances of fraud are on the rise. Even though it feels like the planets are lining up against the applicant, never has it been a better time to invest in real estate. So, with hopes of minimizing your challenges, here are some tips.
1. Credit cards.
While shopping for a home (or being under contract for a long time), it’s very important to keep your credit cards paid on time and restrain from any large purchases. Please avoid letting anyone run your credit while you are shopping for a home and please do not close any revolving accounts. This can actually lower your score, even as much as a late payment could. About 48-72 hours prior to closing, a soft-pull (meaning it won’t show or hurt your credit score) report is done. This will tell the lender if there have been any new accounts opened, any inquiries for new credit, and any increased balances. Substantial increases mean another trip back into underwriting.
2. Non payroll deposits.
If your bank statements have “counter deposits” listed, you will be required to show the source of those funds. In many cases, it could be a payroll check that doesn’t have automatic deposit. Or, it could be an insurance reimbursement check, bonus check or the sale of an item. Lenders go back 2 months on the statements, in some cases further (they really try to avoid this), but every file is different. The best way to handle deposits that are not already identified as payroll is to make sure you deposit the full check (so the check stub matches the deposit). If there is no check stub or tear off description, please make a copy of the deposit before making the deposit. Please do not deposit any gift funds without specific documentation with your lender and call the lender should someone give you cash. Why all this bother? All loan types require lenders to verify the funds as rightfully belonging to you.
3. Unreimbursed employment expenses.
If you claim unreimbursed employment expenses on your tax returns (Schedule A, line 21 or Form 2106), it is imperative you share this information with your lender. Most loan programs require us to pull IRS transcripts to check for these expenses, which lower your qualifying income.
It is recommended when moving that you do not pack any original financial documentation that cannot be duplicated online. Many times, one document will be a trigger for another document. An example would be transferring money from and account not listed on the application. Remember, we will be asking about those deposits. So this means the lender now will need two months of the “unknown” statement.
5. Your prequalification numbers.
Several factors go into play when you are pre-qualified for a mortgage, including interest, real estate taxes, HOA fees, condo fees, and loan program. If they change, your maximum mortgage changes. The lender will typically give you a sales price range and number I call “your number,” meaning your max payment. Three months from now when you call your lender (and he is nowhere near his computer) to see if you can buy the house you just found, he can ask you for “your number” and then qualify you for that specific home. If your debts or income changes, be sure to check back, so the lender can adjust your max payment, aka, “your number.”
Forewarned…..it can make all the difference in the world.
My first job description in the real estate industry (over 25 years ago) was in a processing office of a large real estate company. My job was to place loans with loan officers and track the status. For 40 hours each week, I would chase them down and hold their feet to the fire. After 4 years of watching loan loans slip through the cracks, I knew this was what I wanted to do. Ever since, I have gravitated towards portfolio lenders for guideline flexibility, but they also had to have a full loan lineup. Acacia Federal Savings Bank has been home for just over four years where I practice what I call, “defensive processing,” or, anticipating the problem in advance. Let us show you what local can do!