Do You Know ....... Installment Loans With 10 Payments Or Less

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Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

At McCue Mortgage we have a standing agenda item at each of our Monthly Sales Meetings called "Do You Know".  The "Do You Knows" can be on a number of issues, new loan programs, underwriting guidelines, recent changes going on in the Lending Industry, or anything else that has an impact on what we do, that might not be as well know as it should.

I don't plan on this being a standing monthly blog series for me, but there are a couple of underwriting Debt-To-Income guidelines that I think are little known, and one of them misunderstood by those outside the Lending Industry that know about it.  I will cover the "Do You Know" that I think has and still is misunderstood first, and the second one in the next blog.

I often get comments from mainly Realtors who tell me that they know their Buyer has a large installment payment, usually it is a car payment, but that the debt will be paid off in less than 10 months, so it should not count against their Buyers Debt-To-Income Ratios.  My response is "well you are half right".

On Conventional Mortgages an Installment Loans With 10 Payments Or Less left on it, can be eliminated from the Debt-To-Income Ratios, but on a FHA Mortgage it can not.  The FHA guideline is as follows:

"Debts lasting less than ten months must be included if the amount of the debt will affect the borrower's ability to pay the mortgage during the months immediately after loan closing, especially if the borrower will have limited or no cash assets after loan closing.

Note.  Monthly payments on revolving or open-ended accounts, regardless of their balances,  are counted as liabilities for qualifying purposes, even if the account is likely to be paid off with 10 months or less."

So on Conventional Mortgages you can eliminate an installment payment with less than 10 months (if the Lender does not have an investor guidelines that prevents them from doing so), but on FHA Mortgages the payment has to be counted until it has a zero balance

The second "Do You Know" will be on the impact that Installment Payments or Revolving Credit Balances that do not have a monthly payment listed on the Credit Report have on Debt-To-Income Ratios.

 

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 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

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Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

George,

Great information.

"Do You Know"

A strange, but powerful variation on this is I've bought down child support to less than 10 months I've had it accepted by Fannie Mae and the VA.

"Do You Know"

The key words being pay-down, to that 10 month point. But, consumers should never do it with out advice from some one like you! On their own they could reduce their ratio only to find they no longer have the required reserves.They should get counseled early, it could take a month or more to get this on a credit report!

I do question your "note" so far as I know so called "cash cards" revolving credit that is always paid in full each month, ie: used like cash, can still be exempted.

Bill

 

Nov 05, 2012 10:16 PM #1
Rainmaker
4,077,525
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George, have heard about installment loans, but after 16 years, still have not ever had a client use this program.

Nov 05, 2012 11:48 PM #2
Rainmaker
1,267,563
Al & Peggy Cunningham, Brokers
RE/MAX West Realty Inc., Brokerage - Brampton, ON
Our Family Wants To Help Your Family!

Informative blog George. We can see how a debt that has 10 months to go could impact repayment ability for those 10 months.

Nov 06, 2012 09:13 AM #3
Rainmaker
2,255,686
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

I can't tell you how often this rule has made the difference between someone getting a loan and not getting a loan.

Thank you for sharing the information.

Nov 06, 2012 09:43 AM #4
Rainmaker
1,792,071
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Interesting George, I didn't know about this with installment loans...good share.

Nov 06, 2012 11:00 AM #5
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Bill, if the credit card reports on the Credit Report, and it has a balance when the Creditor reported the monthly payment, the reported balance will be calculated into the Debt-To-Income Ratios, even if the Borrower paid it off the balance in full since the Creditor reported.  A credit supplement can be ordered for just the purposes of adjusting the balances that have changed since the Creditor last reported.  The Borrower needs to show documentation from the Creditor showing the new balance, and just the balances on the Credit Report will be adjusted to reflect that new balance.  This is not a rapid rescore that the Borrower pays for, which not only adjusts the balances but the credit score as well.

Joan I run into it all the time, and many times end up doing one of the two things that I commented to Bill in my previous response.

Al and Peggy it is amazing how many time I run into it.

Joe, in my case it has been far more times than most people would think it comes into play.

Ginny it is very common, but it is one of those things that the Realtor is usually not aware of.

Nov 06, 2012 09:09 PM #6
Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

George,

I always presented 6 to 12 months bank statements and never had a problem. This was never a problem with the original American Express, even with a balance showing.

The problem so many people have is they want the lender to take everything on faith, it doesn't work that way. In Las Vegas we did hundreds of stated income type loans, but I always had bank statements to back up the statements and I slep well.

We also deleted payments made by a third party, normaly a kid or EX if they could produce 12 months cancled checks from the payer. This one didn't always work because so many parents are on their kids or EX's account.

There is always more than one legal way.

Forgive me I'm rambling, but it's better than talking about politics's or that Rambler guy's kid.

Bill

 

Nov 07, 2012 12:48 AM #7
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Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

George knowing a mortgage product is so important, this is highlighted in your example here of installment payment under 10 months. What works for a conventional loan might not work for an FHA.

Nov 07, 2012 12:17 PM #8
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Bill the I run into the third party payments a lot also, and take care of it the same way you mentioned.  The guidelines are tightening up, some needed to be, but most are beyond what they needed to be.

Jennifer, FHA and Conventional do differ in many areas and this is one of them.  Hopefully this information comes in handy for you.

Nov 07, 2012 01:35 PM #9
Rainer
2,525
Rally Fox
Virden, AZ

According to investopedia definition: "The secondary market for conventional mortgages is extremely large and liquid. Most conventional mortgages are packaged into pass-through mortgage-backed securities, which trade in a well-established forward market known as the mortgage TBA market. Many conventional pass-through securities are further securitized into collateralized mortgage obligations."

Financial advisors usually encourage clients to refinance any higher interest rate mortgage at low current rates if possible. Conventional mortgages often carry lower interest rates and longer maturities. Underwriting standards at banks and financial institutions must adhere to new standards, including prudent loan-to-value regulations. Mortgage holder's ability to repay the installment loan at stated terms, including variable rate loans for a minimum of five years, require income and asset proofs.

Nov 21, 2012 05:54 PM #10
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