Help Me Help You (Qualifying for a Loan)
Qualifying for a Loan
One of the most important factors in getting a loan to refinance your mortgage is good communication. Help your broker or loan officer help you. The more your mortgage professional know about you, your home, and your finances the better chance he will have in getting you that loan; especially in the world of subprime lending where borrowers often need all the help they can get.
The World of High Finance
Sorting out your income situation is often the most difficult part of the loan qualification process. It is important you get all your ducks in a row before your paperwork is submitted to the loan processor and underwriters.
Remember, the loan officer or broker is totally on your side and you have to trust he knows best how to structure your loan so it will get approved and funded in good time. Keeping things from him, even the little things will almost always come to light and at least delay the loan process if not kill it.
Bank Statements or Full Doc
Many people have income that does not show up on their W-2’s or a W-9, but it is still legitimate income. So how do you show it? Most lenders will let you use bank statements in lieu of a W-2 or W-9. The way it works is simple. Each month add up your entire deposits then divide by 12 and you have your yearly income. Just about every lender will require 12 months full bank statements, and some will want 18 -24 months.
Remember, you have to show all pages! Even if each month statement is 8 pages, it all has to be there. The reason is, the lender needs to make sure that your deposits are not being padded by moving money back and forth from account to account, or bank to bank. They have to show up as legitimate deposits. Don’t worry about your debits. Lenders don’t factor those in, as surprisingly as that sounds.
You should be concerned if you have any non-sufficient funds (NSF) on your statements. A couple is fine but if it looks like a trend of them you will probably not be able to use your bank statements. The reason of course to use bank statements is you can submit as full documents and won’t get dinged a higher rate that you would for stated loans for example.
Stated Income Loans
Often called Liar Loans, Stated Income loans are nearly a thing of the past. They were the bread and butter of non- prime lending and a big reason for the real estate bubble our country has been weathering. You may be looking at your W-2 and wondering if your debt to income ratio is too high. The answer could lie in a stated income program which some lenders still allow. You have to make sure your ducks are all in a row here.
You cannot for example submit W-2’s then switch to Stated Income when you find your debt to income ratios were too high. Once the underwriters see something they cannot forget it. Soon as they see your W-2 income you cannot go stated, or bank statements, even if the income is legitimate. That’s why it is so important to talk to your broker and give him full disclosure when it comes to your finances. Be aware that you will pay at least a percent higher interest rate for going Stated Income.
It’s Gotta Make Sense
This is especially true for Stated Income loans or Bank Statement in lieu of Full Doc. If you claim to be an accountant your income has to make sense. Your lender will check to see what the average income for accountants in your area make. Your income has to be near that average, or you have to have a really good story if it’s not. Otherwise your loan will be turned down.
The first lender I worked for only required 3 signed letters from supposed clients and your stated income loan got approved. So of course whenever a loan officer was doing a stated income loan he got 3 other loan officers to write fake letters to be submitted with the loan documents. Can there be any doubt in your mind why so many lenders went belly up?
Full Disclosure
I said it before and I’ll say it again, talk to your broker/loan officer. Remember, he is on your side! The more information he has the greater chance he has in submitting a loan that will get approved and fund without unnecessary delays. This is especially true in the sometimes confusing world of non- prime lending. You’ve heard the saying I’m sure; help me help you. So get out there and help your broker help you.
Sam Dressler is a UK based property expert. Visit Sotheby’s Henley for more information.
