Mortgage Updates

So, what is a complete loan application and why is that important?  Over the course of the last few years with the "easy" lending, I have found that folks (including some loan consultants) have gotten lazy when it comes to the loan application.  What I mean by that is the application comes in with lots of blanks.  A professional loan consultant will take time to review the application with you asking the right questions to provide the Lender's underwriter and ultimately the investor a complete picture. In today's market it is even more important to provide a good picture, thereby increasing the odds of loan approval. 
 
Let's begin with employment.  All loan applications require a solid 2 year employment history.  If you have changed jobs, exact dates will be necessary.  If your job has variable income from over time or time differential it will be important to document receipt from the past job as well as the current.  It will be helpful for you to have the last pay stub from your previous employer with ytd income.  If as has been the case recently, you have had a job "gap" this will need to be explained - and evaluated. 
 
Be sure to include all sources of income needed to qualify.  There are certain questions your lender may not ask.  A borrower is not required to disclose income from family or child support. If this is something you wish not to disclose, that's OK.  If, however, the income will bring your ratio's in line for loan approval - It would be up to you to disclose the amount as well as the source and provide certain documentation to the lender.
 
Residence history.  This too is important and a 2 year history here also needs to be accurately provided.  If you didn't pay rent for a time by living with family, that's OK... but needs to be noted.
 
An important, and often understated part of every application are assets:  Assets; Lenders  analyze both your liquid and non liquid assets.  That means, money in the bank, savings, checking, CD's, money market accounts are considered liquid assets.  Your auto, jewelry, household goods, other "toys" are non liquid.  This means these items have value but cannot be readily converted to "cash".  Retirement accounts - 401K or IRA's, cash value life insurance, bonds, are semi-liquid.  All these assets should be included in your loan application. 
 
There are several ways that underwriter's analyze your application when reviewing assets. First they review the balance between what you owe to and all your assets.  This is called evaluating "net worth".
 
An application that has $55,000 in debts and only $5,000 in assets would indicate a potentially marginal buyer.  Take that same application and show $5,000 in checking,  $12,000 in 401K,  $30,000 in auto value (make, model year) $15,000 in Household Goods $7,500 in tools $3,500 in jewelry... Now there is a positive 'Net worth". 
 
From that point a lender will look for three key aspects;
 
1.  Confirmation of sufficient assets and personal money to make the down payment on the property and to pay closing costs without having to borrow.  Sometimes borrowers do not have sufficient cash for closing and are saving.  This is sometimes the case when the purchase is a new home, under construction.  If there is a "short fall" in the savings... and an asset needs to be sold to provide the necessary funds... That asset had better be on the application in the beginning.  A motorcycle "to be sold" cannot just "appear" when cash is tight.  It has to have been on the application from the start.  The same with a beater car... or a collection of baseball cards, or grandma's ring.  So think carefully when completing your loan application.
 
2.  Confirmation that you have enough reserves to cover two or more months of PITI mortgage payments after making the down payment and paying the closing costs.  Most loan programs and investor underwriting guides require a minimum of two months reserves.  Some loans especially jumbo loans or investment property loans will require a six month minimum.
 
3.  Confirmation that you have other assets showing an ability to manage money and a resource, if needed, to handle emergencies and make mortgage payments.  Reserves can be a big deal and make the difference between approval and decline especially where the desired qualifying ratio's for the loan program are exceeded.  Reserves show the ability to save.  Reserves show that you live within your means.  If the home you are buying increases your housing payment by 1/3 ... and you have a good savings history evidenced by reserves your likelihood for loan approval increases, even in the face of potentially higher than desired housing ratio's.

Other assets include real estate with equity.  This is based on market value less any outstanding loans and would show on the schedule of real estate which is found on page three of the loan application. 
 
Sometimes the "whole story" isn't told on the application form.  That is when a letter from you, the customer is helpful.  Don't be surprised if your loan consultant asks you to write a letter of explanation or "motivation" or both. These letters, written by you (not the loan consultant) can also make a significant difference when the loan application is reviewed by underwriting.  As always, let me know if you have questions.

Comments are always welcome.