- Income must be documented through paystubs, W-2s, 1099’s, and/or Tax Returns. Stated income or income verified through bank statement deposits are not acceptable practices.
- Self Employed – Verify income for the last 2 years with complete personal and business tax returns (if applicable). P&L’s alone cannot be used for income verification.
- Commission Income – Treated much the same as self employed, typically will include 1099s or W-2s from the employer providing the income source
- Salary/Hourly – Must have 30 days of consecutive paystubs, additionally we will require 2 years of W-2s to verify previous income and employment
- Retirement – Verify income a number of ways – Award Letters, W-2s, 1099’s, and/or tax returns for 2 years. Recently retired is ok as long as the income can be verified and received for 1 month.
- Total Debt (including new house payment) should not typically exceed 45% of the borrower(s) gross monthly income. Stronger files can go up to 50%, occasionally even higher with other factors
- FHA Loan requires 3.5% down payment + closing costs. Primary Homes only. Gift Funds are allowed.
- Conventional Loans require a 5% down payment for primary homes, 10% down payment for second homes, and typically 20% down for investment purchases. A loan with less than 20% down does require Private Mortgage Insurance that has additional restrictions not highlighted in this summary. The majority of Conventional Buyers put 20% down or more. Gift funds are allowed with some restrictions.
- VA Loans and USDA Loans require $0 money down, but you still have closing costs. Primary Homes only. Gift Funds are allowed.
- Assets MUST be verified in the borrower(s) account, typically through 2 months of bank statements. Gift Funds are the EXCEPTION; however we must verify the source of the gift. Unsecured loans for down payment ARE NOT acceptable funds for closing.
- Any irregular or large deposits outside of typical payroll deposits WILL be questioned and may not be able to be used for acceptable funds for closing – i.e. cash deposits
- Sale of stock, IRA holdings, annuities, or other non liquid assets (including transfers) will require documentation to validate they are acceptable funds.
- Properly documenting funds for closing is the most common underwriting issue we have in today’s environment.
- Most Lenders adhere to a credit score of 640 or greater.
- Some Lenders will allow a credit score of 620-639, however the requirements of the loan will become much more difficult, the rate will be higher, and often it is better to work to improve the score to 640 to allow for greater predictability and success
- Some FHA Lenders will state they can go lower than 620, however experiences given to me over the last couple of years have shown that these approvals are rare and often have unachievable requirements
- Disputed accounts typically have to be resolved prior to closing
- Not all collections or charged off accounts have to be paid prior to closing, each situation is evaluated
- Past Foreclosures, Short Sales, and Bankruptcies have their own Seasoning Requirements based on loan program – But many persons can qualify for a new loan in as little as 2-3 years