The last year has seen many changes in home lending, some for the better, some for the worse. Over the next couple of blog posts I’ll cover these changes and what is required to get approved for a home loan in today’s lending climate.
Full Doc loans only
In today’s lending climate only Full Doc loans are available. These are loans where documentation to prove income and assets stated on the credit application must be provided. Documentation includes such items as W2’s, 1099’s, and tax returns. Assets must be supported by bank statements, IRA statements, statements from stocks and bonds, etc. All down payment funds must be sourced and seasoned at least for 60 days back from the application date.
At this time Stated Income loans are a thing of the past. Obviously this puts many self-employed borrowers at a huge disadvantage since many do everything possible with itemized deductions to reduce their tax burden. Many times tax returns will not reflect the actual income of the borrower, but Line 37 of Form 1040 is the last word on what a lender will base a borrower’s ability to repay the loan on. Lenders do allow some itemized deductions to be added back-in, however these allowed items rarely increase the Adjusted Gross Income by much.
Hopefully Fannie Mae, Freddie Mac, FHA and VA will change some of their guidelines in the near future to help accommodate the self-employed; maybe by allowing a percentage of Line 1 of Schedule C as qualifying income or allowing more itemized items to be added back into Adjust Gross Income.
If you have any questions regarding becoming qualified to purchase a new home (and it truly is a good time to do so) or any other mortgage-related item, please do not hesitate to call me at (801) 971-7916.