A low credit score and lack of income aren’t the only things that can keep you from qualifying for a mortgage. Here are five other things that can sink you as well.
Are you getting a divorce?
A divorce proceedings in the works won’t automatically disqualify you from obtaining a mortgage or refinancing, but it can make the picture more complicated. Basically, the lender doesn’t want to get left high and dry in a battle over marital property, or refinance a mortgage when one of the two earners will no longer be contributing to the monthly payments.
In fact, people often refinance a mortgage as part of the divorce process as a way of getting one partner’s name off the loan. To do this, however, you have to be in agreement as to who’s going to get the house and the other party needs to be willing to sign off on the deal.
Don’t even try to omit the fact you’ve in a divorce proceeding or simply “neglect” to include it – if your lender finds out, which it probably will during the background check, you’ll be turned down for sure. You could also be charged with mortgage fraud for intentionally lying on a mortgage application.
Did you change jobs recently?
Lenders like to see evidence of a stable employment history before approving you for a mortgage. Typically, that means you should have been in your current job for at least two years before applying for a mortgage or mortgage refinance.
That’s not a hard and fast rule. If you’ve recently taken a new job in the same field at higher pay, it probably won’t hurt you. However, if you’re venturing out in a new career direction – even if you’re earning more – lenders are likely to be reluctant until you’ve established yourself. And if you’re starting a new business, it’s going to take even longer before lenders will be assured you’ve got a reliable income.
Under no circumstances should you change jobs during the loan application process – sit tight until after the mortgage closes, or you’ll have to start all over again. And if you’ve been unemployed for any reason, you’ll probably have to be in a new job for two years before mortgage lenders will be willing to consider you again.
Are you in a lawsuit?
Being a party to a lawsuit makes lenders nervous. If you’re being sued, there’s the chance you may get stuck with a large settlement that may make it difficult to meet your monthly mortgage payments. If you’re suing someone and lose, you could be end up with some hefty attorney bills, not to mention the chance of a countersuit.
Being a potential beneficiary of a class-action lawsuit doesn’t count. To be involved in a suit, you either have to have filed a suit against someone in court, been served as a defendant or have hired an attorney to represent you.
Your mortgage application will ask if you’re involved in a lawsuit of any kind. Again, you have to answer truthfully – this is another situation where you could end up getting charged with mortgage fraud if you misrepresent the facts on your mortgage application.
Are you making major repairs?
When you’re in the midst of major renovations or home repairs is not a good time to try to refinance. While repairs and upgrades can enhance the value of your home, the same work left unfinished will diminish it. Given that completion dates for home improvement projects can be a moving target, lenders will prefer to see the work completed before signing off on a new mortgage.
Some people may seek a cash-out refinance or home equity loan if they find themselves running out of money in a home improvement project they intended to fund by other means. But unless you’ve got a lot of equity already tied up in the home, you’re probably better off seeking to refinance or take out a home equity loan before starting the project.
You recently took on new debt obligations
One of the last things you want to do before applying for a mortgage or mortgage refinance is to take on a big pile of new debt right before doing so. The classic example of this is buying a car – driving up your debt-to-income ratio right before seeking a new mortgage.
Lenders typically want to see your total debt payments be no more than 43 percent of your monthly income, with the mortgage no more than 31 percent. A new car is one major purchase that will sharply drive up your debt load, as will other large purchases – it’s probably best to wait to buy new furniture and carpet until after you’ve secured the mortgage or refinance.
Also, be careful about other ways of incurring debt obligations – if you’re co-signing a loan for an adult child to buy a car, for example, that debt registers against your credit, even if you’re not the one who’ll be making the payments. If the primary borrower defaults, you’ll be the one they come to next, and your mortgage lender takes that into account when figuring your debt load.
- Jack Buck, Jr., NMLS#266343
- Chesterfield, Missouri, United States
- Nationally and State Licensed Loan Officer
Monday, October 24, 2011
Monday, October 17, 2011
Making Sense of Closing Documents
The flood of documents to be signed at closing is one of the most confusing parts of the mortgage process. A typical borrower can expect to be presented with over two dozen documents to sign at a mortgage closing. How do you know what you’re signing?
Like anything else, you need to prioritize. While some documents are critical and need to be carefully scrutinized, others are routine and can be quickly dispensed with. The question is, which are which?
Fortunately, federal law gives you the right to receive copies of all closing documents 24 hours in advance of closing, so you can review them to ensure everything’s in order. Unfortunately, many borrowers fail to take advantage of this right, trusting instead that everything will be in order.
Key mortgage closing documents
The key documents are going to be the ones that set forth the actual terms of the transaction itself. These include the HUD-1 Settlement Statement, Truth in Lending disclosure and the mortgage agreement itself. Copies of these should be reviewed prior to closing and the actual documents you sign should be checked again at closing itself.
The HUD-1 is a detailed listing of all the costs of the transaction, and specifies who is paying each – for example, the seller typically pays certain costs associated with a home sale. The division of costs between buyer and seller – such as for city and county taxes – should reflect what was agreed upon in the sales contract. Also, any payments to the lender should match those provided in the Good Faith Estimate – and are so marked with the designation “from GFE.”
The HUD-1 will also detail a number of other “third-party fees,” such as various types of insurance, real estate agent’s commission and different taxes. Most of these will also have been listed on your Good Faith Estimate, though they can vary by as much as 10 percent from those figures.
The final Truth in Lending (TIL) disclosure details all the terms of your mortgage, including the amount borrowed, interest rate, payback term, total interest to be paid over the life of the loan, etc. Some of these will correspond to figures on the GFE and should match. The TIL also provides a figure called the Annual Percentage Rate (APR), which is a way of expressing the total cost of your loan. Basically, the APR is your mortgage interest rate plus an adjustment to reflect the cost of any fees paid to obtain the loan.
The mortgage agreement
Another major item is the actual mortgage agreement, which is usually in two parts. The first is the actual mortgage note itself, which again states the terms of the loan, gives you the money and commits you to repaying it. It also sets forth such things as when payments are due, grace periods, penalties for late payments and the steps the lender can take if you fail to make payments.
A second document, variously called the mortgage or deed of trust, establishes the right of the lender to repossess the property if you violate the terms of the note, most notably by failing to pay the mortgage, taxes or insurance.
Finally, the deed is the document that actually transfers ownership of the property to you. Although fairly straightforward, it’s important to make sure everything is in order, including your name, the name of the seller and the description of the property. You won’t take this home with you after closing, but it will be sent to you once it is recorded with the county.
Formal notifications
Another group that should be paid close attention to are notifications, which spell out certain conditions in your loan or home purchase that might not be covered in the other agreements or which are spelled out separately for emphasis. These will likely include a notice of your right to cancel, which gives you three days to cancel a refinanced mortgage and recovery your money if you change your mind for any reason, and a notice of no oral agreements, which basically means any verbal promises from your lender carry no weight.
Another is your initial escrow statement, which details the estimated charges for insurance premiums, taxes, PMI and anything else to be paid from your escrow account over the coming year. Any documents that provide additional information about the terms of your loan or home purchase, or about your or your lender’s rights and obligations, should be reviewed and understood prior to closing.
Getting your ducks in a row
Another batch of documents might be termed “ducks,” since they’re about getting your ducks in order so the mortgage and property sale can proceed. These include your title and homeowner’s insurance, property survey, private mortgage insurance (PMI) if needed, sewer and water certification, termite inspection and homeowner’s association agreements if required, certificate of occupancy for a new house and all the other things that have to be done before the sale can proceed. These should be reviewed before the sale to make sure they’re in order, but don’t demand close scrutiny.
Finally, a last batch of documents are for routine matters, many of them simply confirming that you have received or signed off on other forms, that you have had certain terms of the agreement explained to you or that you understand certain terms of the agreement. They don’t demand a lot of attention from you, but you should at least recognize what they refer to. If not, don’t sign off on them until you’re sure about what you’re signing.
Like anything else, you need to prioritize. While some documents are critical and need to be carefully scrutinized, others are routine and can be quickly dispensed with. The question is, which are which?
Fortunately, federal law gives you the right to receive copies of all closing documents 24 hours in advance of closing, so you can review them to ensure everything’s in order. Unfortunately, many borrowers fail to take advantage of this right, trusting instead that everything will be in order.
Key mortgage closing documents
The key documents are going to be the ones that set forth the actual terms of the transaction itself. These include the HUD-1 Settlement Statement, Truth in Lending disclosure and the mortgage agreement itself. Copies of these should be reviewed prior to closing and the actual documents you sign should be checked again at closing itself.
The HUD-1 is a detailed listing of all the costs of the transaction, and specifies who is paying each – for example, the seller typically pays certain costs associated with a home sale. The division of costs between buyer and seller – such as for city and county taxes – should reflect what was agreed upon in the sales contract. Also, any payments to the lender should match those provided in the Good Faith Estimate – and are so marked with the designation “from GFE.”
The HUD-1 will also detail a number of other “third-party fees,” such as various types of insurance, real estate agent’s commission and different taxes. Most of these will also have been listed on your Good Faith Estimate, though they can vary by as much as 10 percent from those figures.
The final Truth in Lending (TIL) disclosure details all the terms of your mortgage, including the amount borrowed, interest rate, payback term, total interest to be paid over the life of the loan, etc. Some of these will correspond to figures on the GFE and should match. The TIL also provides a figure called the Annual Percentage Rate (APR), which is a way of expressing the total cost of your loan. Basically, the APR is your mortgage interest rate plus an adjustment to reflect the cost of any fees paid to obtain the loan.
The mortgage agreement
Another major item is the actual mortgage agreement, which is usually in two parts. The first is the actual mortgage note itself, which again states the terms of the loan, gives you the money and commits you to repaying it. It also sets forth such things as when payments are due, grace periods, penalties for late payments and the steps the lender can take if you fail to make payments.
A second document, variously called the mortgage or deed of trust, establishes the right of the lender to repossess the property if you violate the terms of the note, most notably by failing to pay the mortgage, taxes or insurance.
Finally, the deed is the document that actually transfers ownership of the property to you. Although fairly straightforward, it’s important to make sure everything is in order, including your name, the name of the seller and the description of the property. You won’t take this home with you after closing, but it will be sent to you once it is recorded with the county.
Formal notifications
Another group that should be paid close attention to are notifications, which spell out certain conditions in your loan or home purchase that might not be covered in the other agreements or which are spelled out separately for emphasis. These will likely include a notice of your right to cancel, which gives you three days to cancel a refinanced mortgage and recovery your money if you change your mind for any reason, and a notice of no oral agreements, which basically means any verbal promises from your lender carry no weight.
Another is your initial escrow statement, which details the estimated charges for insurance premiums, taxes, PMI and anything else to be paid from your escrow account over the coming year. Any documents that provide additional information about the terms of your loan or home purchase, or about your or your lender’s rights and obligations, should be reviewed and understood prior to closing.
Getting your ducks in a row
Another batch of documents might be termed “ducks,” since they’re about getting your ducks in order so the mortgage and property sale can proceed. These include your title and homeowner’s insurance, property survey, private mortgage insurance (PMI) if needed, sewer and water certification, termite inspection and homeowner’s association agreements if required, certificate of occupancy for a new house and all the other things that have to be done before the sale can proceed. These should be reviewed before the sale to make sure they’re in order, but don’t demand close scrutiny.
Finally, a last batch of documents are for routine matters, many of them simply confirming that you have received or signed off on other forms, that you have had certain terms of the agreement explained to you or that you understand certain terms of the agreement. They don’t demand a lot of attention from you, but you should at least recognize what they refer to. If not, don’t sign off on them until you’re sure about what you’re signing.
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