Kathy Godin does an excellent job explaining how things a buyer may not even consider important can affect their ability to get a mortgage. A great read for anyone considering the purchase of a home.
Being zapped by mortgage payment shock made Isaac a very unhappy camper. He let the messenger (me) know about it in no uncertain terms. Can anything be done?
Isaac made good money for a guy his age. His employer was growing and the future looked bright. He thought a mortgage would be automatic. Heck I had told him his FICO credit scores were good enough. What was my problem?
Isaac did not take setbacks well. Why should he? He hadn’t had much practice and he didn’t understand why he was experiencing a setback now. He was buying a house, making a very big purchase and this was how he was being treated! Not happy.
Technically true – Isaac was buying a house. In reality the lender was buying the house. Because of this reality lenders became unreasonable. They wanted reassurance Isaac would pay them back.
When borrower’s mortgage payment exceeds current housing costs by a certain percentage, the borrower is zapped with a mortgage payment shock situation.
The percentage varies depending on loan program and lender policies (it can be as low as 25%). The important point is to be aware this can happen. A significant increase in housing expense should lead to a discussion with a loan officer prior to making an offer on a house.
Back to Isaac. After college he rented a house with two friends. One friend paid the rent and collected cash from the other two. No documentation existed that Isaac had ever made a housing payment. Lender looked at Isaac’s mortgage payment of $900 and compared it to his current housing payment of $0.00. A red flag that alerted them to possible loan default.
You might think you’re different. You have a history of making housing payments. That’s good. Next step requires a review of your current housing payment and your new mortgage payment. A big jump here triggers a red flag too.
Is mortgage payment shock fatal? It doesn’t have to be. Rejection is not automatic. It’s just a red flag – an alert to review the file more closely. The underwriter will consider other factors that can override the difference in housing payments. Examples:
1. FICO credit score significantly above minimum requirement.
2. Low ratio comparing mortgage payment and current income.
3. Cash reserves after closing equal to three months’ mortgage payments.
1. Sudden rise in expenses concern lenders. To them risk increases in proportion to the rise.
2. Reality is only reality when there is a paper trail.
I welcome questions or comments.
Kathy Godin, Branch Manager & Award-Winning Loan Officer
Originally published: http://raleighmortgagegals.com
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