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You have to know how to deal in this tough mortgage market..,

By
Services for Real Estate Pros with The Corcoran Group

Unlike the days of 100% financing with no income or asset verification, there's no question loans are tougher to get these days. But they're still available if you can document your income, down payment, closing costs and cash reserves. If you know what to watch for and know how to play the game.

Where do I begin?

First, prove you can afford the monthly payment. If you're salaried, show proof of income. Provide pay stubs reflecting your year-to-date income, plus proof of income tax and Social Security deductions. You have to prove you've either been at the same job or in the same line of work for the past two years.

If you're self-employed, you have to show two years tax returns (1040's if it's a sole proprietorship-1120's if you're incorporated).  If it's mid-year, you'll need a year-to-date profit & loss statement and a balance sheet.

The self-employed borrower is more likely to have problems getting approved.   While the salaried borrower is qualified on gross income, the self-employed borrower is qualified based on net income. In a nutshell, an employed person with an annual salary of $45,000 can qualify for more than a self-employed borrower grossing $100,000+ a year!

My accountant saves me taxes but my net income appears lower than it really is.

No-income verification loans are still available, though the guidelines have changed. The days of the 80/10/10 are gone (where you could put down 10%, get a first mortgage for 80% and a 2nd for 10%.)  Now, most lenders are looking for a down payment of 20%-30% and want asset verification to boot.

If you can document that your income doesn't exceed the debt ratios (36% for FNMA & 43% for FHA), you could qualify for a ‘full doc' loan with minimal payment requirements. But you must prove that the money is yours or the lender won't let you use it.  (It's called ‘source of funds.')

What else do lenders want to see?

Lenders now want to see your complete bank statements for the past two months. If you're getting a gift from a family member, you have to show the funds debited from the donor's account, then credited to the borrower's account or escrow. Lenders want to see cash reserves of two to six months after down payment and closing costs. So if your total payment of principal, interest, taxes, insurance, and association fees totaled $3000/month, the lender could require up to $18,000 remaining after the transaction!

And if you own other properties, make sure your i's are dotted and your t's crossed. That's a huge red flag in today's lending market - and a sure way to get your loan declined! If you own a rental property, have the lease handy. A lender can require proof of the monthly amount deposited to your account for the past 12 months.  If the rental property is within 55 miles of the property you're buying, it has to make sense. If you're buying a $250,000 townhouse to live in, don't want to have a $1,000,000 rental!

Although lending guidelines are tough, interest rates are at historic lows.  And there are great deals out there. It's an ideal time to buy. Yes, the days of the amateur investor are gone. But if you know what you're doing...and have the proper guidance...you can really make a killing in this market! 

Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Colleen, This is wonderful information--I knew it was more difficult to get a loan in some cases but didn't know about some of these things.  Thanks for the wonderful information.

Dec 23, 2008 10:31 AM
Sandy Shores FL RealtorĀ®, Melbourne Real Estate
M & M Realty of Brevard Inc. - Melbourne, FL
Brevard County Real Estate, Florida's Space Coast

Colleen, I feel so blessed to have met you here on AR.  Thanks for everything you have shared with us all and I wish you and your family a wonderful Christmas.

Dec 25, 2008 05:20 AM
Jason Wheeler
JasonWheeler.biz - Pleasant Hill, CA
JasonWheeler.biz

It is great that we are getting back to real legit lending practices finally!

Dec 25, 2008 02:56 PM
Colleen Cooley
The Corcoran Group - Jupiter, FL
CRS - Jupiter Florida

Carole - Yep, it all boils down to quality rather than quantity!

Dec 26, 2008 10:01 AM
Colleen Cooley
The Corcoran Group - Jupiter, FL
CRS - Jupiter Florida

Hi Sandy... that was such a sweet comment.  I look forward to getting to know you better!

Dec 26, 2008 10:02 AM
Colleen Cooley
The Corcoran Group - Jupiter, FL
CRS - Jupiter Florida

Jason - I keep looking at it as a market cleansing!

Dec 26, 2008 10:04 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Colleen: Thank you! My wish is always that the public will read this great post. I hope you enjoyed your Christmas and wish you a great start to the New Year!

Dec 27, 2008 01:57 AM
Colleen Cooley
The Corcoran Group - Jupiter, FL
CRS - Jupiter Florida

Thanks for commenting Paul... can't say I don't miss the days of the NINA! When you have a self-employed borrower with plenty of $$ & excellent credit, chances are they have a good accountant & show a low AGI. This is were the crunch has hurt me the most.

Dec 27, 2008 02:12 PM