Posts Tagged ‘income exception’

More changes due to Covid

April 21, 2020

I know… I know…. we’ve had our fill of Covid related news. I hear you! I know your head is probably spinning trying to keep up. Mine too! To compensate, let’s get straight to the point!

A post from earlier in April detailed changes in the mortgage industry. One of the changes focused on the increased scrutiny of continued employment due to many layoffs/furloughs throughout the country. Since the post, we’ve experienced more changes.

  • Year to Date Profit and Loss statements are often being required for self employed borrowers. This is to show stable income in the time of Covid.
  • Those getting temporary or permanent salary reductions can still qualify for a home loan. So long as we can show the updated income (pay stub reflecting the reduced pay), and the borrower still qualifies for the loan with the reduced pay, then we can proceed as normal.
  • Investment accounts had a mandatory manual reduction of 50% from the statement balance due to the losses in the stock market (if an investment account shows $200,000, then we could only use $100,000 toward the loan). With the rebound in stocks, the manual adjustment is now 30%.

While the entire experience right now can be frustrating, underwriting has shown some flexibility:

  • P&Ls: I had a client closing where half of their income is earned in the 4th quarter. If you took the first quarter earnings and multiplied by 4 to get a yearly total, the pace would be way off! I had my client compile a P&L from the first quarter in 2019 to compare it to year to date 2020 to show income is similar when compared to the same time last year. The loan was approved.
  • Normally when there is a reduction of income/hours, we need to show the reduction has been in place for a period of time (not just one pay period). Well, we have successfully closed clients after one pay period of the reduced pay so long as they still qualify for the loan with the reduced pay.
  • Updates are happening in relatively real time as the investment account requirement updated as market conditions improved.

I feel underwriting is trying to work with us during this tough time while still meeting the agency guidelines. I’ll work with my clients to present the best case for continued stability of income for those who are in the loan process and being impacted by the fallout from Covid.

Thinking of getting a home loan right now? Rates are still low for those looking to refinance… people are still out looking for homes to purchase. The housing market is still very active. Contact me today, and we can talk about how Covid will impact your ability to purchase a home (if any impact at all). If you are looking to get the loan on a property in the state of Georgia, I can gladly help you with the loan!

Is Freddie better than Fannie?

August 13, 2014


Both Freddie Mac and Fannie Mae offer conventional loan products, but is one better than the other? In most ways, the loan products are similar. It’s like choosing the difference between chocolate cake and yellow cake… either way, you are still eating cake!

Even so, what if a specific situation made the decision for you? For instance, if you are allergic to chocolate, you probably don’t need to eat chocolate cake. There are certain situations that make Freddie Mac loans more appearing than Fannie Mae loans. Here are three of them.

  • Self-Employed Borrowers: Freddie Mac loans almost always only require one year of tax returns. Self employed borrowers can have a harder time qualifying for a conventional loan when two years of tax returns are needed… what if they had a down year two years ago?… what about declining income from last year to the current year? Either of those can cause problems. Both are eliminated when using a Freddie Mac conventional loan product since, in most cases, only one year of self employed income on the tax returns is required.
  • Income Exception: Let’s say my client just got a promotion, but the new income doesn’t begin for 60 days and the closing date on the new home is within 30 days. That will not be a problem using a Freddie Mac loan. As long as there is a 720+ credit score, the increased income begins within 90 days of closing, and the client has enough reserves to make mortgage payments until the new income begins, I can get someone approved for a loan using their increased income.
  • Non Occupant Co-Borrower: For the longest time, conventional loans would not allow non-occupant-co-borrowers* to co-sign on a loan. Freddie Mac will allow someone who is not going to live in the home co-sign onto someone else’s mortgage. I would be able to use the co-signer’s income and assets when qualifying the person who will live in the home as their primary residence. Whether or not this is a good idea to co-sign is a conversation the co-signer should have with the loan officer and their financial adviser. That said, if they are willing to co-sign, we can make it happen!

Fannie Mae and Freddie Mac loans offer similar loan products at similar interest rates. There really isn’t much difference between the two. That said, there are certain scenarios that make Freddie Mac loans better for the loan applicant. This is why you need to work with a mortgage lender who will ask the detailed questions that might lead to one of these scenarios. I can’t tell you how many times I have spoken with someone who started the conversation saying “I can’t qualify for a loan,” but they actually could qualify. You never know until you ask, so at least ask the question.

If you are buying a home in the state of Georgia, I can help you get started. Contact me today and we’ll get the prequalification process underway.

* a non-occupant-co-borrower is someone who will co-signing on a mortgage for someone else, but they will not live in the property being purchased.