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Mortgage Pitfalls

 Top 10 Items that Kill a Mortgage 

We polled 20 underwriters and asked them one simple question "What is the most common problem you see with a file?"  Even if you do not proceed with Interstate understand these potential pitfalls and ask your lender about them if you think they could apply to you:

 
  1. Funds to Close- When going to the signing of your loan if funds to close are required you must bring them from a verified account listed on the 1003. If your funds are coming from a 401K or IRA you must show the transfer to your checking account used to fund loan at closing.
  2. Property Listed – If you have had home listed in previous 6 mo. let your LO know immediately. This will be discovered in the appraisal process and could cost unnecessary appraisal fees.
  3. Bonus Income- If a borrower wants to qualify with bonus income we will need to see current YTD and previous two year history of bonus. Many times larger companies use Work Number verifications and will not itemize pay over previous year(s). Ask your loan officer about this up front and always try to qualify without it. 
  4. 2106 Expenses on 1040’s- Most borrowers don’t realize but an underwriter will reduce their income by the amount of expenses that a borrower deducts for 2106 items. Typically these expenses are job/work related and will reduce your income used to qualify. 
  5. Schedule of Real Estate- Not disclosing all properties on a borrower’s tax return (Schedule E) can cause major delays. Even if a property is free and clear, underwriting will need to document proof for taxes and insurance. Borrower(s) must qualify with all real estate expenses even if title is not in his/her name or someone else is making the payment (wrap mortgage). 
  6. Rate/Term vs. Cash out- Rate/Term refinance can only pay off mortgages used at time of purchasing the home. Sometimes when paying off second mortgages it is discovered that it was not used to purchase the home. This causes a rate increase and turns loan to cash out. Get proof upfront by showing your HUD-1 at time of purchase.
  7. Large Deposits- When underwriting reviews your asset statements they are looking for large deposits (typically over $1000). If they are unable to determine the source they will require proof of where the funds came from. Typically this is cancelled check and statement from the account the check was written on showing it cleared. Double check your statements for unusual large deposits upfront.
  8. Employment History- Make sure your loan application employment history matches the information on your W2’s and paystubs. If underwriting sees different company name they will ask for letter from payroll stating one in the same. If your physical work address is a home office we will need letter from company that you can work remotely. Sometimes payroll companies change and YTD information is incomplete. Double check that your W2’s provided matches your reported W2 wages on your tax return to insure you supplied all of them.
  9. Other Income Sources- When trying to qualify using other income like SSI, annuities, pension or other retirement remember that a 3 year proof of continuance is needed. Most of the time a benefits or terms of retirement letter showing “Lifetime Benefit” will work. Also to use this type of income generally a 6 mo. history of receiving it is needed. Ask your LO for exact items needed when using other types of income. Commission income will be averaged over 2 year history. Using these types of income will require you provide last two year tax returns.  
  10. Liabilities- Sometimes there are liabilities that do not match credit report. Copy of terms showing repayment should be provided and must reference the account number on credit. If you are subordinating a Line of Credit remember we will qualify off the total limit not the current balance. If your debt has an adjustable interest rate typically we will use 1% of total line for the monthly payment. Student loans must qualify with payment regardless of deferment status.  Mortgages in a spouse's name, not on the mortgage application, still need to be counted against borrower during qualification.  

For questions or pricing contact a team member today.

480-553-5555

 

Interstate Mortgage Service, Inc. NMLS #89235
25062 South 190th Street, Queen Creek, AZ  85142
Office:  (480) 553-5555
ryan@interstatemortgage.net
Copyright © 2014 Interstate Mortgage Service, Inc. NMLS#: 37053. Go to www.nmlsconsumeraccess.org to verify licensing.

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