Here are seven sample scenarios that could make it difficult to obtain financing for a new home...
1. Changing jobs before the loan closes
The underwriter approved your application based on your documented
income covering two years or longer, from one source. At closing you
must certify that all the information in your application continues to
be true, which short of committing perjury you won't be able to do if
you switch jobs. Your revised job history will be numbered in days
rather than years, which could cause a rejection.
Back in the
pre-crisis days, underwriters had discretion to use their judgment in
such cases. If the borrower was moving up to a better position in the
same field, for example, they would let it go. In today's market,
however, underwriter discretion has been markedly reduced, and the
likelihood of rejection is uncomfortably high. The prudent thing to do
is to defer the job change until after the loan closes. Nobody will
care what you do then.
2. Counting future expected rental income as income needed to qualify for the
income cannot be counted as qualifying income unless it is documented
in the owner's tax return for at least two years. Further, only income
net of expenses would be counted, and that number would be very small
or zero if you expense everything you can in order to avoid taxes.
3. Using your income and your spouse's credit to qualify
Good credit without the means to pay is of little value to lenders,
and good income without the willingness to pay is not much better.
Lenders require both capacity to pay and willingness to pay in the same
Before the financial crisis, married couples who had one
spouse with the required income and the other with good credit often
took "stated income" loans. Stated income was not verified by the
lender. These loans were taken in the name of the spouse with good
credit, who stated that the income of the other spouse was theirs. But
stated-income loans no longer exist.
4. Not understanding what pre-approval means
The main purpose of preapprovals is to establish the bona
fides of potential homebuyers to home sellers and their agents, who
don't want to waste time dealing with wannabe buyers who can't qualify
for a mortgage. With an increasing number of potential homebuyers
unable to qualify, the value of reliable preapprovals has increased.
the same factors that make it more difficult to qualify for a mortgage
today also make preapprovals less reliable. This is especially the
case with self-employed buyers, who may be rejected despite having been
preapproved. Preapprovals are always subject to conditions, the most
important of which is a minimum appraised value. If an appraisal comes
in below the minimum, the preapproval dies.
5. Getting financing for a "nonpermanent resident alien"
The terms for this type of buyer is a little stiffer because of the risk that you might
be obliged to leave the country. Lenders will require a larger down
payment and/or a higher interest rate. In contrast, a "permanent
resident alien" suffers no penalty.
6. Not understanding that your student loans can affect your ability to get a loan
If you must begin repaying the debt within the first year of the
mortgage, and if the amount is large relative to income this could cause problems with qualifying. If the
payments are deferred more than a year, it is a judgment call by the
underwriter who will consider the size of the student debt, your credit
and perhaps other factors.
7. Divorce decrees and title to your previous home
If you are still on title for your previous loan you are still responsible for it. If you can afford a new mortgage but not two mortgages, your ex-spouse will need to agree to refinance the mortgage in their own name to remove your name from the current deed. Such a
provision should have been part of a separation agreement.
only other possibility is to convince the new lender that the ex-spouse
remaining in the house is sufficiently creditworthy that there is
negligible risk of your having to meet two payments. That will require
documentation that your ex has been making the payments on their own already for
at least a year.
Source: Jack Guttentag at Inman News®