Most Common Issues that Arise When Applying for a Mortgage
Below is a list of some of the most common issues that occur when applying for a mortgage:
Taxes & Insurance – make sure to find out what the mortgage person is using for taxes, insurance, and association dues when looking at properties because this can cause a loan to be denied if they are higher.
Seller Seasoning – If the seller hasn’t owned the property for at least 90 days some lenders will not allow that on FHA or Conventional loans unless it was a bank disposition company.Â Also, on an FHA loan if the property is being sold between 91-180 days for more than 100% of what the seller acquired it for a 2nd appraisal is required.
Condos – if the delinquencies are over 15%, there is litigation, one investor owning more than 10% of the units, not enough Fidelity Bond Coverage, not enough in reserves, over 50% are investment properties, etc. it could make the condo ineligible for financing.
Attached PUDs (Attached Housing) – many banks now require a questionnaire on them so we may see some issues that condos have happen on a PUD when getting a Conventional mortgage.
PUDs – if the property is located in a PUD we will need a copy of the master insurance policy with $1 million in coverage.
Kitchens – most banks want the kitchen to contain kitchen cabinets and a sink but that’ s not every bank. Also, the underwriter will look to see if the borrower has sufficient assets to purchase the appliances needed and if they don’t may require them in advance of closing.
Unpermitted Additions – it is best to convert them back to their original use however FHA does state that “An unpermitted addition or modification to the subject property should comply with local building code and zoning. FHA does not require enforcement or verification of compliance with local building codes but holds the DE Lender and Underwriter responsible for making sure the property is safe, secure and structurally sound in accordance with HUD’s Minimum Property Requirements.”Â Make sure to check with your lender
Bank Overlays – each bank has their own rules and during the loan process something may arise where it no longer meets their guidelines. The benefit of a Mortgage Bank is that their underwriter can underwrite it to another banks guidelines and approve the deal instead of denying it and the borrower having to start all over again.
Deposits – we need to prove where any and all deposits came from so if it’s cash or you can’t document it don’t deposit it. For the most part if it’s not from your pay, a gift from a relative, or a transfer from another account you have, don’t do it.
Rental Income From Current Primary – if a borrower is vacating their current primary, buying a new on, and needs to use the rental income from their current primary they need to document 25% equity with an FHA loan and 30% with a Conventional loan.Â There are other requirements that go along with that such as reserves needed.
Unreimbursed Employer Expenses – these can be found on Schedule A of your tax return and are brought over from Form 2106. If a borrower has these we have to deduct that amount from their income.Â There is only one way to find out about this type of expense, review the tax returns from day 1.
Business Loss – many borrowers will have a side business in addition to their full time job and due to trying to reduce their taxable income they show a loss. There is only one way to find out about this type of expense, review the tax returns from day 1.
Depreciation/Amortization – if you don’t get a copy of a borrower’s corporate tax returns since Fannie Mae technically only calls for the personal returns in most instances it could limit the borrower on the amount they can borrow since this income can be added back in, increasing their income.
Declining Income – most times with commission, overtime, bonus, and self-employed income it will be income average however if the most recent tax return is less than the previous year we no longer average it and go off of the lesser of the 2. Make sure to make as much money as you can during your loan.
Paystubs – if there are payroll deductions that were not on the credit report it could create another debt that no one was aware of.
Credit – don’t pay off, pay down, take on new debt, or do anything with your credit unless speaking with your mortgage professional.
Lastly, the 4 C’s are always needed – Credit, Cash (Assets), Capacity (Income, & Collateral (the property). You cannot have one without the other. The borrower must qualify with the first 3 C’s and the property must qualify too.