A lot of detailed documentation is required when applying for a home loan these days. You can expect to show everything from full tax returns, pay stubs, bank statements, to letters of explanation regarding credit, debt, income and assets. However, that leaves quite a bit of room for challenges to pop up. Here are four common roadblocks you may encounter in the mortgage underwriting process, and how you can fix them:
1. Changes in Your Income
Let’s say the underwriter determines – based upon your pay stubs and tax returns – that your income is lower than what the loan originator said it was. An easy way to offset that is a written verification of employment (VOE), which specifies and breaks down your income. This is especially important if you’re an hourly wage earner with fluctuating income – such as varying hours worked, bonuses, or overtime – that has not been consistent for most of the past two years.
2. Your Debt Eats Up Too Much of Your Income
You might encounter a problem if your consumer debts, such as student loans, credit cards and car loans, are just too large for the mortgage amount you’re applying for. If your debt-to-income ratio exceeds 45%, to still qualify, you’ll need to make a change in any of the following ways:
a. Reduce the payment on the mortgage
b. Reduce and/or remove the payments on the consumer loans
c. Re-evaluate the income
3. Paying Off Your Debt… the ‘Wrong’ Way
When you pay off consumer debts to qualify for a mortgage, the account(s) must be closed as well. This can be a problem, as closing credit cards can have a negative impact on your credit score.
An alternative option involves getting an updated credit report that shows that the debts are paid off in full without any payments due. The key is to make absolutely sure each creditor whom you paid off in full specifically reports to each credit bureau a zero balance and a zero payment due.
4. Negative Events on Your Credit Report
Lenders run each borrower through a comprehensive background screening through multiple fraud databases, which would identify any other problems that may arise – such as a short sale or any property you were tied to in the past seven years. If any other unaccounted-for properties pop up, documentation will be required to either show the property is no longer yours, or it was sold, or the carrying cost of that property would be factored into your debt-to-income ratio.
If you are not sure about something financially related to your loan application, just be sure to ask your Paramount mortgage banker. Should any unforeseen roadblocks pop up in your mortgage loan process, call your loan officer right away to explain the situation and get a read on what type of documentation will be needed to satisfy the condition and/or the problem. Our experienced loan professional can guide you through to a successful closing.