OfflineA New York Times article this week speaks to the reasons buyers and owners wanting to refinance are being turned down for loans. Some are the ones we’re used to, like credit scores, but scrutiny is the highest it’s been in decades, so getting a mortgage requires planning.
1.Insufficient income – while minimum income requirements for mortgages have always been an important factor, lenders are more careful than ever about verifying income, and they want to see a couple of years of history at the least. A gap in employment history in the last two years can get a borrower rejected out of hand.
2.Debt-to-income – rigid ratios are employed, and generally debt can’t exceed 45% to 50% of income. But, it’s also that many are surprised at what’s included as debt and what isn’t included as income. Overtime and bonuses aren’t included unless there’s a history with the same employer for two years that shows they’re a regular item. Many times rental income from owned property won’t be allowed either.
3.Bad credit – outright rejections are normal these days with FICO scores below 620. Some lenders draw the line at 660. Recent estimates are that fully one-third of all Americans can’t qualify for a mortgage right now due to their credit score alone.
4.Low appraisal – as in the previous article, lenders are being more strict with their rules for appraisers, and appraisals are coming in lower. If the appraisal doesn’t indicate a value equal to the sales price or higher, the deal is dead unless the seller drops the price, the buyer pays more in down payment, or a combination of both.
5.Property problems – the purchase and financing of condominiums are running into problems with new rules about what percentage of units can be owned by one entity. There are also problems if too many units are vacant, too many owners are behind on their payments, or if there is a certain percentage behind on homeowner fees and dues. Inspection and repair issues can kill mortgages as well.
6.Information problems – unverifiable information or incomplete credit verification is resulting in 12% of mortgages being disapproved. Trying to refinance a property that’s being rented out will likely result in a rejection in the current mortgage market.
Whether for your own home or a rental property investment, it’s become even more important to approach the mortgage process with a whole lot more preparation if you want to get that approval in the current market.
Thanks for sharing this with me. I know this will help my buyers on top of my Mortgage Broker. Always very useful information.
Darrell Ford
Lifetouch Properties LLC
www.lifetouchproperties.com
"Failure equals my death, I Shall not Fail."
Will help in being prepared baefore submitting an app for a prequalification or mortgage. Info on condos particularly helpful..was not fully aware of these stumbling blocks. Semper Fi D-LO
I can rememeber almost like it was yesterday how "loose" the mortgage game was... "Liar loans," interest only, 3/5/10-year ARMS, 118% ARV loans, zero interest (or zero above the FED) loans, local yoga instructors and door-to-door salesmen were becoming "mortgage brokers" after attending a weekend seminar, earning six figures for themselves in a matter of weeks.
Now the RE market has tanked, national economy has tanked, some foreign countries have went bankrupt, corporations got bailed out, a "slap on the wrist," or both. The federal government threatened to clamp down on banks and how they do business, sending them scurrying in fear to their phones and pocket politicians. People cheered to let Detroit drown (which I personally took offense to) while they scrambled to Wal-Mart to stock up on all things made in China. Don't forget that whole "chinese drywall" scandal which killed a few people, made hundreds sick, and nearly brought Florida to its knees...
Today, it seems like they'll only lend money to people who already have a cash vault they can swim in (remember the cartoon Richie Rich?). How long do you think it will be until they require more than 20% down to get a mortgage? Self-employed? Own your own business? Switched careers? You better be married to an underwriter, otherwise forget it!
I can't believe Big Banking has the nerve to play innocent and wonder why all these "Occupy ______ (insert your town's name here)" protests are going on? "Why are all the peasants (their label, not mine) angry with us? We didn't do anything to (or for) them." Nothing except robo-foreclose millions of people, refuse to refi anyone even after Obama told them to and gave them extra money to make it happen.
I guess the whole point behind this rant is this - REI's are the backbone of this economy, and it's up to US to put our neighbors, local economies, and eventually the country, back on top again. I think I've just come up with a slogan for my new RE business... "Reviving the American Dream - one family at a time." Like Dean said: "Barack Obama is not going to bail you out." We need to bail ourselves out, and help as many people as we can along the way.
I don't know about any of you guys, but I've sat on my hands long enough. I'm gonna "throw my hat in the ring," and hope a truck doesn't come by and run it over, LOL. To all of you making it happen already, you're part of the solution. I owe you an apology for not starting sooner. I'm gonna stop "talking about it" and start "being about it." Just like Dean and the movies "Dazed & Confused" and "Jerry Maguire," it's time to ask everyone you know: "Who's coming with me?"
Paul: "I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when my fear is gone I will turn and face fear's path, and only I will remain."
Duke Leto: "I'll miss the sea, but a person needs new experiences. They jar something deep inside, allowing him to grow. Without change something sleeps inside us, and seldom awakens. The sleeper must awaken." - "Dune."
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It wasn't just mortgages that were easy to get but signature loans as well. With only $200 in my account, I could go to my bank online, apply for a loan of $10000 and be approved in 5 minutes. Go to the bank the next day after work and pick up the check.
I did this twice!
It was crazy. I even asked the associate what the limit was for me personally. He said there really isn't one, as long as you keep making the payments. At that time I had about a 720 credit score and a job that I've been at for about 10 yrs so that probably did make a difference. But still...
Mark K.
Life Disclaimer: Past Failures are NOT indicative of Future Results.
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I remember reading the "signature loan flip" strategy to rebuild your personal credit back in the late 90's. The author I read wanted you to start a savings account (or use a CD if the bank is nervous) with $1K and in the same sitting, ask for a $1K loan using that new deposit as collateral. Go for as low interest as possible with a 90 day - 6 month repayment term. He said the term had to be at least 90 days in order to show up on your credit report, which he also told the reader to make sure would happen before you deposited the money and signed off on the loan.
The way he wrote it he made it sound like they couldn't say "no" to you. Then take the $1K you "borrowed," march down to bank #2, and repeat. Then go to bank #3 and repeat. Take the $1K you borrowed from bank #3 and use it to pay bank #1 back a week early, every month. Rinse, repeat, you guys get the rest... Now you magically have 3 solid credit lines with 3 different banks and all it cost the reader was the interest he wound up paying, which because of the small amount and term was usually pocket change.
I wanted to test this out, but I didn't have a grand lying around, so I had a friend who had the money learn this strategy and try to put it to use. Well, he must have had far worse credit than he let on, or he didn't do something right because, he never made it past the 1st bank. 1st they said he didn't qualify, so he asked "what do you mean?" Then they came back with, "your income isn't high enough" (he had a 670 credit score, had a $40K truck paid off, and made $35K in the military at the time). He didn't believe that, so he politely persisted, they finally said, "we don't even DO signature loans at this bank!" W-W-Whaaaat?! It was the biggest bank in our town, and the main branch for it's entire network, so we knew THAT was BS...
Needless to say, that was all it took back then to "pop my bubble" about this strategy. Who's to say what exactly went wrong, it simply blew up in his (and my) face in spectacular fashion. Maybe that author knew something he didn't mention in his book. Maybe my friend screwed up somewhere I wasn't aware of. Maybe my friend got nervous and just sat in Burger King's parking lot, cooking up a story to feed me about how he really did try but "it doesn't work." I didn't go to the bank with him, and it's too long ago to know now.
Oh, the days of "loose money," LOL! I remember it like it was yesterday. It seemed to be "loose" for everyone but me. I just got done watching "Capitalism: A Love Story," and seeing all those bank and mortgage ads from places that are now out of business scared and angered me all over again. Here's hoping for a speedy national economic recovery, which will most likely be entirely because of REI's like us! Take care.
Paul: "I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when my fear is gone I will turn and face fear's path, and only I will remain."
Duke Leto: "I'll miss the sea, but a person needs new experiences. They jar something deep inside, allowing him to grow. Without change something sleeps inside us, and seldom awakens. The sleeper must awaken." - "Dune."
Thanks for sharing, very helpful, Jim
jbischoff