One of the most important – if not the most important – factor in homeownership is qualifying for a mortgage. And unfortunately we continue to hear about a few instances of lenders denying credit for seemingly odd reasons. Yesterday the New York Times ran a story about a pregnant woman being initially qualified for a loan, then rejected, then re-instated. This morning, Jean Chatzky on the Today Show did a great job in explaining the situation and what potential homebuyers need to do to prepare for the loan process.
So I thought I would spend a moment to explain what is occurring.
As most now understand, many lenders during the recent housing boom issued loans fairly freely, including the use of “no doc” loans. Essentially, buyers did not have to show nor verify employment status and income levels and were given mortgages with low “teaser” rates that eventually re-adjusted to a higher rate. As long as housing prices continued to rise, these borrowers would be able to refinance thus insuring additional fees being paid to the lender. With hindsight being 20/20, we now know this wasn’t great for the lenders, the U.S. economy and obviously the home buyers — many of whom have lost their homes to foreclosure.
So today, Fannie Mae and Freddie Mac, which buy and essentially insure almost all of the US mortgages, have put in some guidelines to help curtail potential foreclosures. And lenders, rightly so, are being much more conservative.
Lenders are asking for documentation on income and financial viability. And they are also double and triple checking. If job status or other changes occur during the process, it could present red flags. There is nothing wrong with this, but it does make the process more cumbersome and sometimes frustrating because lenders may ask for more and more paperwork. Recently one of the members of our team bought her first home. She needed to provide bank statements, verification and re-verification that funds were available in the proper checking accounts and her lender repeatedly called to verify employment — likely to make certain her job status had not changed from pre-approval to closing.
But what frustrated her the most was the lack of clear communication on what the lender needed and why they did. So again, as with most things in life, it comes down to communication. Don’t be afraid to ask questions and utilize the experience of your agent to make certain that all things are going smoothly. And most of all, ask your agent to help you find a reputable mortgage lender to help reduce the chances of unexpected challenges.
We will likely to continue to hear of a cases where lending might be declined for odd reasons. But in most cases there will be a logical explanation.
And please remember that if you have the necessary down payment, have financial viability, can document your income, and ultimately can afford the home you want, you will likely get a loan. You may have to go through a few more layers of paperwork than you would have three years ago. But to me, it’s just an extra round of checks and balances and well worth the hassles.
Flickr image by nerdcoregirl