Episode 64, Segment 1: Common "Landmines" in Qualifying
John Schutze & Mark Hairston discuss the surprises, or as they call them - the "landmines", that can delay your home loan process once found. Listen in to make sure you don't run into any landmines of your own!
"I've been doing loans here for 30 years, and guidelines in mortgage lending changes over time. Since 2008 specifically, we've tightened guidelines and it's become much stricter to qualify for a loan," says Mark. "So a landmine would be things that happen in the process sometimes that catch us off guard or the client isn't prepared for it that makes it challenging for the loan to get processed and close on time."
"One that comes to mind is child support," John says. "If you pay child support, let your lender know - because it's generally not on a credit report, so we don't know about it if you haven't told us.
"It's really important to have complete transparency for both lenders and the clients to make sure that we're crossing all our t's and dotting our I's," Mark adds.
"Another thing that we've seen is the money needed for down payment and closing costs needs to be verified," John explains. "Oftentimes when you're getting qualified as a borrower, the mortgage professional says you'll need $20K or whatever for the down payment and you may have $25k in your bank account so we move on - and what we sometimes find out is that that $25K wasn't there - they may have a vintage car that they're selling for cash and then deposit in the bank, but that's not generally an acceptable source for a down payment."
"The bottom line is really understanding what the acceptable sources are and verifying large deposits," Mark says. "I had a client that sold a boat and a trailer and we were able to document the ownership of the boat and the transfer of title so it was fine, but had he not had all that, it would have been a problem."
"As a borrower, you just have to trust your lender and tell them everything, John says. "It could be a gift from a family member or selling something and that's usually acceptable if we have the right documentation, and if we know ahead of time, we can get that documentation rather than after the fact when it's too late."
"Another big one is commission and self-employment income," John says. "We've had a situation where there was a boyfriend/girlfriend so the girlfriend called to apply on her boyfriend's behalf, it looked great so we took it at face value. A couple days later, the girlfriend called back with her boyfriend's tax returns so she brought them in and we found out that in this case, half his income was from Dell but the other half was from his own business that showed some losses. So that's another thing that we call a landmine, and that's why it's important for us lenders to ask all these questions upfront to avoid the landmine later on in the process."
"Another common mistake we run into is someone opening a new credit card or buying a vehicle or piece of furniture that can end up changing their credit score and possibly make it lower," John and Mark say. "It can change your debt-ratio and make it so that you don't qualify anymore."