Monday, January 24, 2011

5 Mortgage Qualifying Red Flags You Need to Know Before House Shopping!

What’s the first thing you do when you start working with a client? You ask the area, the type of home, the price range, etc. Next, you probably ask about their family, their employment and if they have been pre-qualified for a mortgage loan.

There are 5 mortgage qualifying situations that we have to be familiar with when looking at Rental Property or even homes.  Good Agents don't want to waste your time showing you homes, so tell them up front!
  • Self-Employed Clients – A person is considered “self-employed” if they own 25% or more of any business. This includes partnerships and LLCs. Not only do I need 2 years’ tax returns, I have to have them sign a form, that’s sent to the IRS to verify the numbers. The red flags here are when someone says they have filed an extension—or they state they “don’t show all of their income” – or they “write off” all their expenses—and show no income.
  • Divorced/Previously Divorced – Going thru a divorce can wreak havoc on a person’s credit. But more often than not, it’s the “joint debts” that still show up on the credit report that becomes a problem.  This is especially true if the person had a mortgage with their ex-spouse and has not been released of liability. We will have to prove (with canceled checks) that the ex is paying the payments on time.
  • Job-Hopping Clients – It’s not a bad thing if they change jobs, within the same industry, with very little time off between jobs. It shows a lack of “job stability” if a person hops from job to job or working for a “temp agency”.
  • Foreclosure, Short Sale, Deed in Lieu – Simply put, there are pre-determined “waiting periods” before your clients can apply for a mortgage. There are shorter waiting periods for those who have had a short sale or deed in lieu (versus a full foreclosure), but the shorter the waiting period, the more money they’ll need for a down payment.
  • Bankruptcy – Waiting periods apply here too, but it depends upon which “chapter of the bankruptcy code” they filed under. The bankruptcy has to have been “discharged” and all the paperwork, including a schedule of debts is needed for me to review. There are extenuating circumstances (medical, death of a spouse) which allows a shorter period of time—but divorce or job loss is not considered an extenuating circumstance.

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