How a borrower with a 720+ FICO score got turned down
This is extremely important information, especially when working with investors or high-end properties. Brandon Snider has done a great job of explaining a complex situation. Please make your comments to him . . .
How can this happen?? Was it due to a title issue? NO. Was it due to an income issue? NO.
Let me tell you the story...
This past week I had to turn down a refinance loan for borrowers with 720+ FICO scores. It was one of the toughest things I had to do.
By the way, you can learn how to get your real FICO score by clicking here.
When these borrowers came to me, everything looked great. Good income, low debt ratios, and good credit scores (720+). He was looking to refinance two loans from an 80/20 purchase he had done about 6 years ago to a new 15 year fixed rate loan. He was taking advantage of the historic low rates and we locked in a 3.875% rate.
So I asked for income and asset documents, and as I began to review them I noticed a few large deposits that I inquired about. He began to explain that they were for rent checks for a commercial building he owned. So I immediately went to review his tax returns and noticed that he was claiming rental income on his Schedule E on his personal tax returns. I noticed that an interest deduction was claimed, so I asked him if there was a mortgage. He told me it was just a note and mortgage between he and a business partner of his that he was purchasing the building from. It was set up that the business paid him rent (hence the deposits) then he would in turn pay that amount to his partner.
Now comes the part of the required documentation required for his loan. Fannie Mae Guidelines require the verification of payment for any unreported mortgage. We couldn't, with prudent underwriting, ask for a VOL (Verification of Loan) or VOM (Verification of Mortgage) due to the unique nature of the relationship. He was working for a business who was paying rent on a building he was purchasing from another business partner.
Sometimes in the day to day operation of the business, the rent hadn't got paid on time. But with my borrowers, they would immediately pay the business partner for the note. That partner would then sometime hold the checks, either just because he didn't need the money or because he forgot, but he would cash them late. And of course, sometimes when the rent didn't get paid on time, then my borrower would pay his partner "late".
Between friends, there was an understanding and there was never any late fees charged in either the case of late rent, or late payment on the mortgage.
However, this was all revealed when we asked for cancelled checks for the mortgage payment history. Unfortunately this cost my borrowers their loan.
Not many times in my career will I have to turn down borrowers with a profile like this, but this is a wake up call to those who think how they pay things may not matter....but they might just come back to haunt you!
Brandon Snider
District Lending Manager
Consumer First Mortgage
Visit my website at www.MortgagesCanBeSimple.com
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