With today's tightened lending guidelines, it is critical for buyers and agents to understand what it needed to successfully obtain mortgage financing today. This post was inspired by Buyer frustrated over the mortgage process in Key West Florida. written by Elizabeth Birmingham. In it, she brings up a lot of today's challenges faced by buyers and agents. By being better educated, agents can also do their part to lessen the negative impact.
Many of the issues that she mentioned below are there for very valid reasons given the current state of the real estate market.
1. Bad Credit scores are now between 620 and 660. The bank usually says no to thee buyers automatically. This is really not a true statement. Most FHA/VA/USDA loans require a 640+ FICO. For FHA, we do offer a 580-639 FICO program. With a 20% down payment, conventional mortgages for a primary residence will go down to 620+. An investment property will generally reuqire a 660+ or a 680+ FICO due to the increase risk.
2. Not enough income. This is a no brainer and will never change. That is 100% correct. If sufficient income to support the mortgage payment cannot be documented, then the mortgage cannot be approved. This is why it is very important that all income documentation (pay stubs, W-2's, and Federal Income tax returns) all be reviewed PRIOR to a Pre-Qualificaion certificate ever being issued.
3. Paperwork glitches. Missing forms, incomplete information on the application can slow or stop the process. 15% of of application are slowed down because the buyer did not complete the application correctly or provide proper documentation. Incomplete applications become a big challenge for all involved. When buyers only supply a few pages of a document, that is not acceptable. Some also do not understand the importance of getting everything in ASAP. Once a buyer is under contract, time is of the essence with any request for documentation. All non payroll direct deposits must be explained and documented. Very often, they have not kept proper copies of what is needed. With sales contracts, I often see contact info for the closing attorney/title compnay misisng along with that from the HOA.
4. Homeowner Association issues. Only on condos, do HOA issues really pose an problem with the mortgage approval. Condos go through a more stringent approval to better examine their overall stability since it impacts every owner in the project. Things such as owner occupancy, pending litigation, and delinquency of HOA dues are evaluated.5. Problems in the neighborhood. If the neighborhood is in decline. broken into distressed homes with major repairs needed are often a black mark on the appraisal. Only the subject property would really be directly impacted if repairs are needed. Homes in severe need of repair that have closed would generally not be used as comps for an appraisal. If they are used, then condition adjustments should be made to the final value.
6. Appraisals. If the home doe not appraise the banks won't lend. The maximum loan to value is based on the lesser of the sales price or the appraised value (only USDA and renovation loans use the higher appraised value). The seller and buyer can always renegotiate the transaction based on the new value.
7. Bank Conditions. Underwriters all want something different. Each bank has a different set of rules and documentation requirements. Lender overlays are very common in today's market. Some are simply much tighter than others. It's critical for the loan officer to know them all inside and out.
8. Gaps in employment history can wreck havoc on a buyers chance of getting a mortgage. Overtime income must be consistent and documented. Even rental income is scrutinized. If the borrower has a 6+ gap in employment, then they must currently be employed for at least 6+ months before the income can be used for qualifying. Bonus/overtime/commission income, must be received at least 12-24 months before it can be used. Unreimbursed Business Expenses claimed on tax returns are also deducted from the borrower's qualifying income.
9. Discrepancies in title work, contracts or name inconsistencies. Paperwork This is where agents need to be very careful when writing a sales contract. Pull the USPS for the address so that its 100% accurate. Make sure that the buyer's correct legal name is used. Don't put Bobby or Maggie on the contract if its really Robert or Margaret. I see addendums all of the time changing names because the agent didn't ask first and used the buyer's incorrect name. For the title commitment, the closing attorney will use the names exactly as they appear on the sales contract.
Having agents set proper expectations upfront will go a long way in making mortgage closings much easier. Everyone working together will result in the ultimate goal of the closing. This teamwork will result in the "FOR SALE" sign being taken down much quicker.
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