WHO CAN GIVE A GIFT?
WHO CAN’T GIVE THE GIFT
DOCUMENTING THE GIFT
THE GIFT FOR DOWN PAYMENT BOTTOM LINE
Minneapolis St Paul, MN: When taking out the largest loan most people will ever have in their life, a home loan, your Mortgage Loan Officer is going to ask a lot of questions, and request a lot of supporting documents, like pay stubs, W2’s, tax returns, and your recent bank statements.
Providing all this documentation really should be pretty easy for most people, yet it also causes a lot of frustration. Most people don’t get pay checks handed to them anymore, just as many people don’t get banks statements mailed to the home either. So here starts some of the annoyance issues right away for some people, while others quickly and easily access the documents online.
Your lender wants actual pay stubs, and actual bank statements, like what would be mailed to the home. Many people send simple screen shots, which simply doesn’t work. Most online accounts let you print real statements and real pay stubs, you just need to look around to find them.
Generally, most mortgage loan programs only require your two most recent bank statements. We also need ALL the statements pages too. If the statement says “Page 1 of 3”, and the last page is just advertising, we still need it.
When the mortgage company looks at your bank statements, the most obvious thing they are looking for is do you have the money in the bank to cover your down payment and closing costs, also known as ‘cash-to-close.” Do you have it all today? What is your average balances?
If your last two months bank statements show $500 balances, but you need $10,000 for down payment, where is it coming from?
Any large, obviously non-payroll deposit needs to be documented. What is it, where did it come from? Is is a loan that needs to be paid back? Is it a gift? Is it your tax refund?
Large deposits is one of the biggest headaches for both the lender and the applicant, and depending on the answer, can be no big deal, require a little bit of paperwork to prove where it came from, or can actually be a deal killer.
A common problem is many people have large sums of cash at home, then deposit in the bank. As weird as it sound, that cash deposit is NOT an acceptable source of money for your down payment, and needs to be in the bank account at least 60-days before it can be considered usable money for your down payment.
Most lenders consider a large deposit any non-payroll deposit that is more than 50% of a applicant(s) monthly income for conventional loans, and more that 1% of the purchase price of the home for an FHA loan.
Yes, we care if you are bouncing checks. It shows how you manage money.
Let’s say your current rent is $1,000 a month, and you consistently bounce checks. Your potential new house payment is $1,400 a month. You can’t manage your account with rent at $1,000 a month, how are you going to be able to handle a $400 increase in your housing costs?
On the loan application, you are supposed to disclose all recurring debt. The reality is mortgage lenders generally just merge in the debt showing on your credit report. But a sharp eyed Underwriter may catch something on the bank statement and ask a question.
We don’t care about ATM withdrawals at the casino, and we don’t care about your purchase at the liquor store or Victoria’s Secret. We pretty much don’t care anything about your purchases.
Busy bank statements is my personal term for people who transfer around money from their various multiple accounts on a regular basis. This can lead to a lot of headaches in documentation. I just had a client, where on her bank statement, there was a large deposit. When I asked her where it came from, she said her savings account. Great, now send me the savings account statement. Once I saw the savings account, there was a large deposit there too. She said that deposit was from a 401k loan. OK, prove that too.
While she was able to prove and document everything, she also became very annoyed. I understand, but those are the rules. So if you know you will be buying a home in the next few months, it may be easier to put all the money in one account now to avoid any potential issues with Underwriting.
Minneapolis, MN: No one likes having dings on their credit report, but let’s face it, sometimes it is impossible to avoid. When credit dings happen, it is important to work on getting back into the credit good graces, as it effect so many things in your life, from ability to get a mortgage loan, the interest rate you pay on mortgage, credit cards, car loans, and even you paying more for your car insurance.
Next to basic late payments, small collection accounts are some of the most common negative item we see on credit reports. We see a lot for medical items, and old utility bills. We see a lot over disputes with a company that never got resolved.
While some of theses collection accounts may be small, and even long forgotten, they can be real credit score killers.
First, is that simply paying them off doesn’t mean they go away. It still happened, and it is still on your credit report. You can always try to leverage paying the creditor contingent on having the creditor completely remove the item from your report, and sometimes this works. I suggest everyone at least try it. But there is nothing mandating a company remove the negative item once paid.
Paying them off also doesn’t magically improve your credit score like people think. You should usually see at least a small improvement to your credit score, especially if the account being paid is a more recent collection account.
If the collection sits on your credit report for a really long time, and you now pay it off, you may temporarily LOWER your credit score because you may have turned the DLA, or Date of Last Activity to a current date. The basic premise being that the older a negative item is, the less it hurts your score. By paying it off, the account for example went from 5-year old unpaid account (which still hurts), to a one month old paid collection, which may hurt more because it is now recent activity.
Most credit repair experts will tell you to pay off collections starting at the newest account, and working back to the oldest, and that sometimes, it is best to just leave an old account alone.
Over time, it is ALWAYS better to pay a collection account. An unpaid collection account hurts credit more and longer than a paid collection account.
Finally, while some unpaid bill becoming collection may be inevitable, most collections are avoidable. Dealing with the situation up-front is best so it never becomes a collection account. I understand the frustration of a medical bill that should have been paid by insurance, and fighting with the hospital or clinic. But ignoring it doesn’t make it go away, and it will probably come back to haunt you years later.
Minneapolis, MN: Home mortgage loans are one of the toughest loans you’ll ever apply for. The mortgage industry VERIFIES EVERYTHING. Credit, jobs, income, bank statements, tax returns, first born child, blood samples. OK, maybe not the last two… But we check just about everything else.
I’ve been taking mortgage applications for over 20-years, and it appears many people treat it like a resume… and feel it is OK to pad information, or leave information out in order to improve their chances of getting approved.
You may not think a little white lie, or omission is a big deal, but fraud is fraud, even on a mortgage application. Few, if any people actual read what they sign, but the application does contain the following notice:
The information provided in the application is true and correct as of the date set forth opposite my signature and that any intentional or negligent misinformation of the information contained in the application may result in civil liability, including monetary damages, to any person who may suffer any loss due to the reliance upon any misrepresentations that I have made on the application, and/or criminal penalties including, but not limited to, fine or imprisonment or both under the provisions of Title 18, United States Code, Sec 1001, et seg.
The lending process is paperwork intensive. We ask people to provide a lot of documents. While the vast majority of people are honest, you may be shocked at the number of forged documents we see. Prior to the real estate market crash, it was much easier for deceptive people to fool lenders with phony documents, as many of the items people provided were taken for face value, and no additional verification were done.
A common example would be an altered W2 statement, where someone scanned in to the computer, and used PhotoShop or other similar software to change a 3 to an 8, and shows $80,000 a year income instead of $30,000 a year income. That might have worked in 2006, but it doesn’t work today.
The electronic world we live in, and the tools available, simply will not let you get away with any of that anymore. Written verification of income with your employer, verification of W2’s and tax returns with the IRS. Verification of bank statements with your bank, fraud checks, and better credit reporting all work together to make it virtually impossible to commit this type of fraud.
I recently had a client who had a foreclosure that for some odd reason was not showing on the credit report. So they assumed we would never find out, and didn’t mention it. They also ‘lied’ on the application, as there is a question about having foreclosures. We found out, meaning all they did is was waste my time, the real Estate Agents time, the sellers time, processors, underwriters, and even their own money paying for inspections and appraisals on a house they could never buy.
You may be able to fool your Loan Officer up front, and get a pre-approval. This is because the initial pre-approval process generally does not encompass all the verification and fraud checks. Because these items cost money, lenders don’t usually do these additional checks until a home has been picked out, a purchase agreement signed, and the full file goes into actual underwriting.
Nothing worse than to have found the perfect home, given notice to your landlord, packed all your belongings, only to find out the misinformation or omission has been discovered, resulting in a loan denial.
For Real Estate Agents, this is a common reason why a loan may die late in the process. Because of privacy rules, I generally only say a discrepancy of information has been discovered is the reason for loan denial.
It may be tempting to fudge the details slightly, or even try straight up fraud. My best advice is to always complete a mortgage loan application with 100% accurate and truthful information, and to always tell your Loan Officer everything. It will be discovered anyway.
Consumers Misjudge Max Debt-to-Income ratios… and Disqualify Themselves from home loans
According to a survey by Fannie Mae’s Economic and Strategic Research Group, many consumers think it’s difficult to get a mortgage in today’s market.
And forty five percent of those respondents cite too much existing debt as a top reason. Yet, in that same group, more than half don’t actually know the maximum debt-to-income ratio (DTI) required by lenders.
That’s why it’s key to provide information, resources, and tools to educate consumers on the mortgage process, and any perceived barriers, including Debt-to-Income guidelines.
This is also why it is key for the consumer to work with a fully licensed and experienced Loan Officer, versus the more common unlicensed mortgage loan application clerk, who can help you determine the best home loan program, and explain the various program rules and guidelines. On a regular basis, I come across clients who think they can’t be approved for a home loan, yet they can. On the other hand, I also run across plenty of people who have no chance of getting a home loan today, yet they apply.
The bottom line is that it never hurts to apply. You may be given a pre-approval for your dream home, and if not, you’ll be given details on how to improve your situation to be able to qualify later.
Learn more about how to choose a mortgage loan officer here.
According to a survey by credit agency Experian, the highest average credit scores for both sexes are found in Minnesota, where men score 703 and women score 710, out of a range of 300 to 850. The numbers reveals Minneapolis is home to the men with the highest average scores, at 705 in the nation. Women in Green Bay, Wis., do even better, with an average score of 709.
Average scores nationwide for men is 670, and for women 675. A full 1/4th of people fall in the 600 to 699 range, with the higher 600 scores being considered average, and the lower 600 scores being considered poor.
Nevada has the lowest men’s score average at just 645, while the lowest for women is Mississippi with a 640 average score.
Many factors determine your credit score, with the biggest one being payment history. Learn more about what makes your credit score. The score needed to get a mortgage loan, or getting a mortgage loan with a credit score below 640 is very difficult, and getting a loan with a score below 620 is virtually impossible, regardless of what you may read.
Shopping for a new home can be fun. Looking at new homes, seeing different style homes, see how others decorate and starting to imagine what the home would look like when you moved it.
Getting a home mortgage loan – not so fun. But you can make it a much easier and smoother process if you start by working with a good Minnesota, Wisconsin, or South Dakota mortgage professional. Quickly followed by being realistic, cooperative and responsive to the paperwork requirements of the loan process.
First step, be realistic. Are you ready to buy a home? Is your credit OK? Do you have stable employment? Do you have some money for down payment? Assuming YES, the first step is to complete a loan application.
Always use a local lender. There is nothing better online than you can down the street. More often than not, it is actually the other way around. For example, no big internet lender can offers your “local” down payment assistance programs.
Always work with an experienced and fully licensed Loan Officer (read my previous article on learning how to tell the difference).
Mortgage Application Documents
The mortgage application process is cumbersome and paperwork intensive. Everyone needs to supply basic documents, but depending on your individual situation, you may need more – sometimes a lot more.
Gather and have your basic document ready as listed below. Please do not argue with your Loan Officer. When they call asking for something, it is not them picking on you, it is required. Arguing will get you no place except denied if you don’t supply what is being asked for
Common Additional Items
Everyone knows it is smart to get lender Pre-Approved before starting to look for a home, yet many people are actively looking at homes thinking they are Pre-Approved, when in reality, they are only Pre-Qualified.
Pre-Approved or Pre-Qualified? So what is the difference?
As a Loan Officer for over 20-years, I can tell you story after story of people who thought they were Pre-Approved, signed a purchase agreement, gave notice on their apartment, only to be told a week before closing that they were denied. The vast majority of these people, calling me to see if I can magically help them had two big items in common:
Looking to buy a home in Minnesota, Wisconsin, or South Dakota? Don’t have your dream fall apart at the last minute, get properly Pre-Approved for a home loan today.
You are fully pre-approved, and actively looking for homes with a Real Estate Agent. You find the perfect home, but there are multiple offers, and one of them is cash. Panic sets in, but don’t worry.
Sellers love cash buyers for two main reasons. The first one is super obvious – quick closings. The second, but bigger scare, is any lender related issues. Is the client “really” qualified? Will the house appraise OK? Will the lender require something to be repaired? How long will it take to close?
If possible, try these tips to make you are your offer as good, or better than a cash offer.
While it has no bearing in reality, both Real Estate Agents and sellers think you are a more qualified buyer if you put more money down. So try a bigger down payment if you possibly can afford it. Interesting, the #1 best performing mortgage loan with the least foreclosures in the market is a zero down payment VA Loan.
Most buyers opt to have a home inspection done. Most official inspections find no major items that you likely didn’t see already yourself. Most buyers end up nit-picking minor little items, then ask the seller to “fix” everything. This is very annoying to sellers. Look the house over good by yourself, and then skip the official inspection.
Are you constantly being out bid? Everyone else seem to be willing to pay more? Consider looking at homes in a slightly lower price point. By looking at less expensive homes, you can be the one that puts in an offer over the asking price, and winds the deal.
All loans have closing costs. It is very common to ask the seller to pay your closing costs. The seller isn’t really paying anything, rather it is just a way for the buyer to pay the costs over time, versus paying up front at closing.
For example: If you offer $205,000 and ask the seller to pay $5000 on your behalf, the sellers net is $200,000. If you offer $200,000 without asking for anything, the sellers net is still $200,000. Unfortunately, most sellers feel like you are ripping them off when you ask for seller concessions. They add up in the sellers mind, which works against you. Try not to ask for ANY concessions, not even a “Home Warranty” (99.9% of the time you’d never need anyway).
Buying and selling a home can be very emotional. Talking to the seller about how you’d love to raise your three kids there, just like the seller raised their kids there has serious emotional pull. It goes a long way when fighting against a typically lower cash offer from someone who just plans of flipping the home.
Fighting cash buyers can be discouraging. But, just because they’re dealing in cash doesn’t mean they win. Many investors think they can low-ball with cash. Show you are super serious with these ideas, and you’ll have a winning bid!
Where do you fit?
Do NOT let this fool you. I was rather shocked to read this information. That doesn’t sound like my average customer!
Best advice? Contact a local licensed mortgage professional. Provide them with a full application, and let them determine if you qualify for a mortgage loan with your credit score, your income, and your down payment size.