by Jimmy Kinley, Senior Mortgage Advisor, Coldwell Banker Home Loans
I wish I could say current mortgage loan guidelines in Denver are loosening, but it just wouldn’t be true. It seems there are two different sides to this. One side says “Nobody can get a loan” and the other says “You can, but it’s a lot more difficult”. The truth is that if you are a regular W-2 salaried employee and you pay your bills on time, it hasn’t really changed at all. You can essentially qualify for about the same loan as 5 years ago. The difference is that your lender is going to question everything and leave no stone unturned. There are some tips on how to qualify for a mortgage home loan.
Now if you are commissioned, trying to use bonus income, self employed, or don’t pay your bills on time; it has changed a lot. If you are self employed you will need to provide 2 years worth of personal and business tax returns, plus a year to date profit and loss statement just to get pre-approved. Here is the real kicker: self employed borrowers only get to use adjusted income after their write offs. A salaried W-2 worker gets to qualify off gross income. So yes, it is much harder to get a loan if you are self employed. There are many other items that would come up if you are self employed, but the article will drag on if I touch on them all. If you are receiving commissions or bonuses, you will need a minimum of 2 years of consistent income from the same source to use it.
Paying your bills on time is a must. But, even that will not make loan approval automatic. I have buyers ask me all the time; “Does it not matter that I have paid a mortgage on time for the last 20 years”. The answer is “yes” and “no”. It does matter that you pay your bills on time. But,that is only one of many things that matter. You must also have the income, the assets, etc. The good old days of having 1 or 2 really strong attributes and that allowing us to overlook the weaker attributes are gone. You must have a check mark in all the boxes, not just some.
If you want a conforming (Fannie Mae or Freddie Mac) mortgage loan and you don’t have taxable income on your tax returns, you can’t get one. “Even if you have cash in your savings account to pay for the house 3 times over”. Now, you may find some private investor or bank that will do a portfolio loan for that, but you will typically need a large down and take a higher rate.
With all that said; many people can still qualify for mortgages just the same as before. And, the rates now are astounding. There has never been a better time to buy in my opinion! Big picture…find a good loan originator that is thorough up front. Don’t get upset if you feel they are questioning things a little too much. They are simply trying to find any issues “up front” since the underwriter will dig for these same issues later. Trust me, you want to spearhead these now and not when your whole house is in boxes!
The Loan Process
Now you are pre-approved, have a house under contract, and you have locked your rate with a lender. The process from here hasn’t changed much except for 2 things that can get a little cumbersome. The government pressure has created 2 initiatives that affect ALL buyers. First, the lender will question any inquiries in the last 90 days on your credit and can re-pull your credit right before closing. They are essentially fishing to make sure you haven’t opened new debt that could affect your debt-to-income ratios and making sure you aren’t trying to borrower money to buy a house. The old rule still stands as far as I am concerned. “If buying a home is the most important thing, leave the rest alone”. Just don’t buy that new car, yet.
Second, they are going to question every single deposit on your bank statement that isn’t clearly payroll from your employer. How much makes a large deposit you ask? Any deposit that doesn’t come from your payroll now makes a large deposit. The amount no longer matters. This is where it gets fun!! You will not only have to explain where the money came from, but you will have to prove it with the documentation. Close enough will not work either. It needs to be definitive. There is also a likely chance that the underwriter could pop up with a new requirement towards the end of your process that they didn’t ask for before. This is due to a new requirement to do quality control checks on mortgages before closing. Although this can be frustrating, it typically doesn’t affect your ability to qualify if your originator did their job “up front”.
The Good News
Sure the process is complicated and not everyone can do it; but it is fantastic for those that can. As of today, we are seeing current 30 year mortgage rates for solid buyers with great credit around 3.5% and 2.875% on a 15 year amortization. WOW!! These are not buy down rates or teaser rates with way higher Annual Percentage Rates. These rates have APR’s within .1% assuming you don’t have mortgage insurance. Combine this with the fact that we have clearly turned the corner and property values are going up…Now is the time to pull the trigger!!
The mortgage process is cumbersome, but will likely become the new normal in due time. Maybe one day it might loosen back up. The reality is it is still doable and the deals are great. Let’s not forget that the mortgages being done now are solid loans and this is protecting your future property values against another crash due to sky rocketing foreclosure rates. This also means that your largest investment is becoming a safer one again.