Top Four Reasons for Rejected Files
#1 Derogatory Credit:
Within the last 12-24 months.
24 MONTHS (requires excellent credit with only 5% down on the 95% program,
3% down, (can be gifted), on the 97% progam
and NO down payment on the Money Saver 103% program)
#2 INSTABIILITY OF INCOME:
Frequent job changes in the last 2 years.
Recent changes in careers
#3 RATIOS EXCEEDING GUIDELINES:
#4 LIQUID ASSETS:
Any funds for down payment, closing cost, or reserves must be verifiable and gift funds can only
be accepted on certain programs. On programs where the buyer is putting 5% down or more - than at least 5%
of the down payment must be from his own saved funds unless a gift of 20% down or greater is received
Items considered when reviewing a credit report:
- Derogatory credit within the last 12-24 months.
- Collection accounts paid off to qualify
- Poor credit in past without re-establishing new credit.
- Derogatory credit after a banruptcy needs to be discharged 4 years.
- Judgment must be paid in full, including any tax liens.
- No credit history requires rent verifications and utility bills to establish credit.
- Remember that a co-signer does not off-set bad credit.
RATIOS THAT EXCEED THE GUIDELINES
Insufficient income may cause ratios to exceed the guidelines.
- Full-time does not always mean 40 hours per week
INSTABILITY OF INCOME:
- Unreinbursed business expenses will cause income to be less
- On any sales or commissioned employee you should plan on checking for business expenses on their tax returns
- Rental income is almost always showing a break or even or loss on tax returns.
(Guidelines require tax returns to be provided on anyone with rental property),
Therefore, if a buyer tells you they get $600.00 per month in rental income - REMEMBER
that this is probably before deductions of their own payment on the home and writing off the maintenance. In some cases, the payment can be washed out by the rental income.
- Child support received or Note income must be verifiable and last at least the next three (3) years.
ITEMS CONSIDERED WHEN REVIEWING EMPLOYMENT
- Three or more job changes in a two year time frame throws a red flag unless the purchaser is a union worker or in the carpentry field. Fields of employment must be related and the change must be for the better.
- Seasonal or temporary employment of job stability.
- Seasonal workers' income must be averaged.
- Part-time income, bonuses and overtime must be verifiable over the past two years.
- Never go off W-2 income for qualifiying: some of the W-3 income may not be able to be counted and/or borrower may make more money now.
- A change in careers may require a year on the job for Conventional type loans
- Self-employed or commissioned employees must have been in the same line of work for at least the last two years or have two years tax returns.
- If borrower has new job with probation period, loans can be approved BUT not closed until probation period has expired (i.e., including but not limited to state or federal employment)
- Buyers most always forget a few debts when going over obligations: payroll deduction loans,
allotments, 401K loans, gas cards, child suport and mutual funds just to name a few.
- Monthly requirement debts are sometimes higher than estimated by the buyer
(We at Citizens Mortgage Company will run a credit report to check the monthly payments while you are at our office)
- If our borrower has co-signed on loans the debt must be over 12 months old, (with proof the other party is making the payment), in order to not count against them when qualifiying.
- Co-signers must be able to produce 12 months canceled checks showing paid
on time in order not to count as an obligation.
In order not to count an obligation you must have the following:
- Installment loans must not last over 10 months and should be under $300 a month
- All revolving debt is counted whether it is under 10 months or not.
- If the ratios exceed the guidelines look at a fixed rate buy-down or an adjustable rate mortgage.
- If using a co-signer the main borrower's ratios must still be 37/43 on their own.
- Co-signers must be blood relatives
Conventional: 28%/36%, BUT with our new automatic underwriting,
borrowers with GOOD credit can go up to 40%+
Money Saver: Conventional, 103% Program = 38% Ratio, NO TOLERANCE
700+ fico score, and again NO TOLERANCE