Trey Bowden
EDMOND — Recent changes to the real estate market are making it more difficult for some home buyers to qualify for mortgage financing. In recent months I have written detailing some of these changes. Again I feel it necessary to provide my readers an update on the ever-tightening mortgage guidelines.
This update is for conventional financing only. Federal Homeowners Association and Veterans Administration loans are not considered for this article.
Maximum financing: Maximum percentage of financing available is 97 percent for first-time home buyers purchasing a single family dwelling as their primary residence. The minimum FICO for 97 percent financing is 700 and the maximum loan amount is $417,000. Lower credit scores are limited to 95 percent financing.
Second homes: Purchase of a second home is allowable up to 95 percent financing with a minimum FICO score of 680 and a maximum loan amount of $417,000.
Pending sale of current primary residence: If the current primary residence is a pending sale but will not be completed before closing on purchase of new home, both the current mortgage payment and the new mortgage payment must be used to calculate debt to income ratio.
Keeping current hom1e as second home and purchasing new primary residence: Both mortgage payments must be included in the debt to income ratio calculations and six months of full mortgage payments for both properties must be shown in reserves. If current home has at least 30 percent equity, reserves requirements may be lowered to two months of each.
Conversion of current home to a rental property: As in the previous scenario, both mortgage payments must be included in the debt to income ratio calculations and six months of PITI is required to be in reserves. Up to 75 percent of the rental income may be used to offset the mortgage payment if there is at least 30 percent equity in the property. If there is not 30 percent equity, then rental income can not be used to offset mortgage payment.
Verification of income including commissions, overtime and bonuses: Borrowers with this type of income must provide two years of signed tax returns if at least 25 percent of their income is from these sources.
Self-employment income: Borrowers who are self-employed must provide two years signed tax returns with all schedules. If the borrower owns at least 25 percent interest in the business, or partnership, appropriate returns also must be submitted. Self-employed borrowers should be prepared to also submit a profit and loss statement.
Second-job income: This type of income must be supported by a 12-month history verified by the employer.
Employment by a relative: If borrower’s income is derived from this type of employment, borrower must submit two years signed tax returns and all schedules. Also 30 days of pay vouchers or pay stubs must be submitted with year-to-date income showing.
Any gaps in employment: If the borrower has any gaps in their employment, these gaps must be explained in a letter from the borrower.
Assets: A verification of deposit showing the average balance for the past two months must be conducted by the lender. Additionally, statements for this time period also must be submitted by the lender. Any significant deposits or withdrawals must be explained in a letter from the borrower.
Gift funds for closing: If gift funds are being used, these must be shown on the loan application and a letter from the gifting party must be written with a statement that no repayment is required. Make certain to check with your financial adviser or CPA regarding any tax ramifications such a gift may have.
TREY BOWDEN is a licensed mortgage professional in Edmond. To read more, go to: http://homeownergone-mad.blogspot.com.
