5 New Barriers to Getting a Mortgage

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5 New Barriers to Getting a Mortgage

Are you experiencing issues getting a mortgage approved? Lenders have been applying more stringent requirements on mortgage and refinancing applicants since since the housing bubble crashed. Here are five explanations for why it’s becoming more difficult to get authorized these days.

Lender Paranoia

It seems sense that mortgage lenders would pay more attention to applicants’ financial problems given that they naturally desire to learn from their prior errors. However, adjustments in the secondary mortgage market have increased their level of caution. It used to be simple for lenders to get the FHA’s or Fannie Mae’s insurance or guarantee for their loans, according to Greg Cook, a registered real estate broker and mortgage banker in California. These entities would only demand that lenders repurchase a mortgage in the event of fraud.

The lender must pay the money to replace the funds on their warehouse line if the FHA decides the lender did not follow the rules, according to Cook. A tiny lender “may go insolvent due to many buybacks.”

Lenders must be more careful when accepting borrowers since they now have greater accountability for the loans they generate.

Restrictions on Eligible Income

Do you have a second job that pays you money? Lenders may not give a damn about how important this money is to you, giving your monthly budget some much-needed breathing space and consistency. Wendy Hooper, a realtor in Orange County, California, states “Unless it has been obtained from the same source for 12 months or has been earned within the same precise field for 24 months without more than a 30-day break, income from a second job is often not permitted. If it is not shown on a W-2, it is often not permitted at all.”

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Unfortunately, a lot of individuals are paid in cash for their second job. Lenders may not be willing to take this revenue into consideration, even if you deposit the money in your bank account and report the additional income on your W-2.

Apparently, Cook “All bank deposits that are not direct payroll payments must now be scrutinized in order to satisfy lenders. In our former existence, justifications weren’t necessary provided the borrower’s income covered deposits. Loans are being declined because it is almost impossible to verify monetary payments.”

Tighter Income-Verification Standards

Nowadays, lenders will carefully review any income that borrowers desire to be taken into account when determining their capacity to repay a loan. The lack of stated-income and low-documentation loans is terrible news for borrowers who are self-employed. However, they are not the only ones encountering difficulties. People who work in a field where receiving cash payments is prevalent, like the food sector, may have problems being authorized since lenders are wary of cash deposits. Pregnant parents should exercise care as well, according to a New York Times report.

Lenders are wary because “frequently, infants are born, and parents have a change of heart about working full time or working at all,” according to Amy Tierce, certified mortgage planning consultant with Wintrust Mortgage.

She states that borrowers on maternity leave must prove they are receiving pay; borrowers who are not receiving pay may either purchase before giving birth while their income can be confirmed, purchase after returning to work, or attempt to qualify on one partner’s salary.

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According to Tierce, who has 20 years of experience in the mortgage industry, “Guidelines like the one described in the Times editorial have been on the books forever.” However, purchasers had more choices in the past to circumvent this rule.

Greater Scrutiny of Credit Reports

If you are able to get preapproval, keep your guard up. You must inform your lender of any actions you take that might negatively impact your credit score or any information on your credit record. According to Kevin C. Miller, president and chief executive officer of TexasLending.com in Dallas, “Clients must write letters for all credit inquiries that may appear after they apply for a home loan, and the loan will now wait to close until the client can prove they have not taken on new debt due to the inquiry.”

Borrowers shouldn’t create any additional accounts or make any late payments if they want their mortgage approval to stand. They shouldn’t cancel any credit card accounts or make any significant purchases. Before closing, lenders must check the borrowers’ credit reports again, and any changes from the time of the application might cause issues.

Cook advises paying off the balance right away if you must use a credit card at all, even to purchase a tank of petrol.

A little decrease in scores, maybe as a consequence of activity, might change an acceptance into a refusal since credit scores are not constant and many loan programs have minimum credit scores, the author adds.

Uninformed and/or Inexperienced Lenders

The days of approving anybody who could fog a mirror are long gone. So if you want a mortgage, go for a knowledgeable loan officer rather than just any old one. The greatest challenge for a customer, according to Tierce, is to deal with a professional loan officer who really comprehends the reality of today’s market and who will know and prepare the borrower on what to anticipate. A good originator will guarantee that there are no surprises that would kill a transaction.

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Asking a loan officer a few questions is a simple method to gauge their level of experience. Do they appear to be talking in circles, or can they express themselves clearly? Do they really answer your inquiries, or are they merely babbling when they respond? Are the explanations specific or general?

Asking a dependable relative, friend, colleague, or real estate agent for a recommendation to a loan officer is still a smart approach to discover someone who is knowledgeable in the field.

The Bottom Line

As banks aim to avoid making the same errors they did in the past, lending criteria have become so much stricter that even borrowers who seem to be eligible are having difficulty being accepted. If it occurs to you, don’t be shocked and don’t let it bother you. You may put yourself in a position to get authorized by working with an expert lender, being patient, and perhaps making some adjustments to your financial condition.

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