GETTING a home mortgage now is a challenge; the gray area qualifying method of lenders and broker back in the mid 2000s’ to help qualify homebuyers has diminished. Therefore the lending have gotten to a point of easily approving or disapproving a borrower based on debt to income ratios, credit, fund reserves, employment history etc. I noticed a great number of homebuyers first time or repeat homebuyers inquiring more about lending guidelines and basically how to rebuild credit.
So, I have gathered some important guidelines from our source of underwriting mainly thru Fannie Mae and Freddie Mac and thought of sharing them with you.
There are several types of financing, Conventional with minimal 5 percent down and Government loan FHA with a minimum of 3.5 percent down. The guidelines are similar maybe a little bit more leniency towards FHA but here is the gist of what you need to know and to prepare for:
Non-Permanent Residence
Allowed under the same terms as US citizens.
– Permanent resident aliens must provide proof of their residency (i.e. green card).
– The Permanent Resident Alien certification must be completed and included in the loan file.
– Borrowers are eligible for financing under the same terms as a US citizen.
– Must currently reside in the US and have a social security number
– Borrower must be employed in the US. The source of the income must be verified and must be expected to continue for at least 3 years and
– Have a 2-year work history including their employment in a foreign country. Standard documentation, authenticity, accuracy, and completeness apply
– Tax Identification Number (TIN) is not acceptable
Non-Occupant Co-borrower
The income of a non-occupying co-borrower may be considered for qualifying purposes, subject to additional criteria
Down payment: The occupant borrower must provide 5 percent of the purchase price towards the down payment using their own funds (which must come from an acceptable source).
Qualifying Ratio: The qualifying ratio for the occupying borrower cannot exceed 35 percent/43 percent
The occupant-borrower must demonstrate the ability and willingness to make the mortgage payment and maintain homeownership. The income from the non-occupant co-borrower can offset certain weaknesses of the occupant-borrower, such as limited financial reserves, limited credit history, or a higher-than-normal qualifying ratio. However, the income from a non-occupant co-borrower cannot be used to offset significant or recent instances of major derogatory credit in the occupant-borrower’s credit history or an occupant-borrower’s inability to make the mortgage payment without regular and significant assistance from the non-occupant co-borrower.
Credit requirements
A 3 bureau merged in-file report must be obtained that contains at least 3 credit scores for each borrower.
– A “representative score” (lower of 2, middle of 3) will be chosen for each borrower on the loan. Then, the lowest of all the borrower’s “representative scores” will be the score used for qualifying.
– The borrower’s established credit history needs to consist of a minimum of 4 trade lines (installment, revolving accounts, mortgages, etc.), one of which has been open a minimum of 24 months, the other 3 must be rated for at least 12 months. Authorized accounts are not included in the minimum trade line requirements.
– All transactions require a minimum 620 credit score regardless of the automated approval
– Borrowers without credit scores are not permitted.
– Loans utilizing non-traditional credit are not permitted
Acceptable income source
Wage Earner Income
– Self-Employed: Sole Proprietorship, Partnership, Corporations
– Non-Employed Income: Alimony/maintenance/Child Support/Separate maintenance, Foster Care, Unemployment/Welfare/ADC, Disability/Worker’s Compensation, Retirement/Pension, Social Security, Annuity, IRA, Military/VA Benefits, Trust, Interest & Dividend, Inheritance/Guaranteed Income, Note Receivables, Mortgage Differential/COLA and Rental.
– Income from sources other than the ones addressed may be considered provided the borrower has received the income for a least 2 years and documentation supports that it will continue for at least 3 years.
Asset documentation
– Liquid assets include checking accounts, savings accounts, CD’s, gifts, money market, mutual funds, stock, trust funds, net equity, bridge loans, bonds, secured borrowed funds, etc.
– Retirement accounts (IRAs) are valued at 60 percent of the vested amount of the asset.
– Funds from personal assets that are sold prior to closing are acceptable as long as the individual purchasing the asset is not a party to either the property sale transaction or the mortgage financing transaction. The borrower must document ownership of the asset, the value of the asset, provide a bill of sale and proof of receipt of funds.
– Assets are verified with 2 months consecutive bank statements. Internet statements are only acceptable if it reflects the same information as the bank statement would reflect. The URL must reflect at the bottom of the statement and all pages must be provided.
– Bank statements must be dated within 45 days from the date of the application. All pages must be provided regardless if blank
GIFT FUNDS ARE ALLOWED AS DOWN PAYMENT FOR OWNER OCCUPIED LOANS
There are a lot of concerns about credit with Foreclosures or Short Sales or Bankruptcy. Usually for bankruptcy, 4 years from Discharge of chapter 7 or 11. For Foreclosures the guideline states 7 years from foreclosure dates. For Short Sales which states “Account Paid for less than amount owed” with zero balances on their accounts, the guidelines states 4 years but mostly lenders now will allow 3 years and if you did not have any mortgage lates prior to the short sale closing, FHA supposedly will allow 2 years from the time the Short Sale closed.
There is a very imbalanced scale now between buyers and sellers, much more buyers than sellers. So, make sure you a prepared to be patience and fully ready to close at a drop of a dime once your offer is accepted.
Good luck, I strongly believe the bottom of the Real Estate is behind us therefore it’s a great time to start to set goals towards homeownership for first time buyers and investors.
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Thanks for all your support and Comments, please call Ken Go of 1st Innovative Finance at (562) 697-7028 or write to [email protected] for further inquiry in getting the best loan for you.