The Home Buyer's Korner

Information presented should be used for educational purposes only.

January 22nd, 2016

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NASHVILLE, TENNESSEE

Home Buyer’s Korner

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Was Your Mortgage Denied? Here’s Why You Should Re-Apply

Mortgage DenialWith different lenders applying different underwriting standards, a home loan that’s denied by one bank may be approved by another. Mortgage guidelines are the loan approval rulebook; a series of pass-fail tests.

Mortgage applicants must receive passing grades for each individual “test” in order to earn an approval:

  1. Does the homeowner meet the minimum debt-to-income standards?
  2. Does the homeowner meet the minimum credit score standards?
  3. Does the homeowner meet the minimum equity thresholds?

Other tested traits may include the amount of time for which a person has self-employed; been getting most of their income from bonuses; or the home owner’s current mortgage-payment or rent history.

When your underwriter is underwriting your loan, what’s really happening is your loan’s individual traits are being checked against a set of standards. Mortgage guidelines are different for different loans and this is where it gets tricky.

Mortgage guidelines are different for different loan types. A conforming mortgage, for example, conforms to the guidelines of Fannie Mae or Freddie Mac. Similarly, and FHA-backed mortgage meets the guidelines of the FHA. While these two loan types account for more than 90 percent of today’s new mortgages, don’t expect your bank to follow their guidelines verbatim.

Many lenders set their own approval standards above and beyond what the government requires: they’re called “investor overlays.” Investor overlays are the tightening of minimum loan standards to improve overall loan quality.

Here are three of the most common investor overlays you’re sure to encounter:

  1. Debt-to-income investor overlays

The Consumer Financial Protection Bureau, Fannie Mae and Freddie Mac require that homeowners’ monthly debt doesn’t exceed 43 percent of their monthly income. Some lenders have reduced that limit to 40 percent. This means that approved applicants will have higher income levels relative to what Fannie Mae and Freddie Mac consider “the minimum.”

  1. Credit score investor overlays

The FHA’s mortgage guidelines explicitly state that there isn’t a minimum credit score to gain FHA approval. Many lenders on the other hand, will not make FHA loans to applicants whose credit scores are below 620. So, even though FHA has no credit-score requirement, lenders do. As such, applicants with low credit scores are often denied FHA financing.

  1. Days off MLS investor overlays.

Sometimes, when borrowers have trouble selling their homes they decide to refinance instead. Fannie Mae and Freddie Mac have a guideline for that. Homes listed for sale can’t be refinanced. Mortgage applications must be dated at least one day after the home has been taken off the market. Yet, some lenders don’t abide by the 1-day off MLS rule. Instead, many refinance lenders require that your home has been off the market for 60 days or longer.

Investor overlays limit loan choices, too. It’s not just loan traits that get the overlay treatment, either. Entire loan programs can meet the chopping block.

Here are some notable examples:

  1. FHA Streamline Refinance: According to the FHA’s official guidelines, there is no credit check required for the FHA Streamline Refinance, nor is there a need for income or employment verification. The streamlined program has just two basic requirements: Have a recent and perfect payment history to the FHA and save at least 5 percent of your current payment.

Those two requirements don’t stop lenders from overlaying their own guidelines, however. Nearly every lender in the country will want to check your credit score and verify that you’re earning income.

In 2009, the government created a special loan program for real estate investors called the “5-10 Properties Program.” It was meant to give financing options to bona fide investors, allowing them to purchase and refinance their investment properties when they have more than four properties financed. The guidelines are basic and most investors meet the requirements. The problem is that few banks offer it.

In short, if your loan was denied by your lender, it could of been due to investor overlays. You might be approved by applying to lender number two or lender number three. Don’t let that first denial discourage you. There are hundreds of lenders offering mortgages in your area, even it they don’t have a storefront in your area and each has its own series of overlays. The key is to find the right one by working with a mortgage lender with a diverse portfolio of investor to select from.

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TENNESSEE HOME OWNERSHIP TOOLS

Your Home Purchasing or Refinancing & Renovation Tools,

Home Improvements, Home Renovations,

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase.

Here are just a few of the home improvements

you might consider with any Home Renovation loan

Repair or replace a roof

Install, replace or repair gutters and downspouts

Replace, repair or upgrade your HVAC system

Repair or replace plumbing

Install, repair or replace electrical systems

Kitchen remodeling (including the purchase and installation of appliances)

Bathroom remodeling, Full interior painting, Total exterior painting

Repair or replace a septic system and/or well

Disability access (wheelchair ramp, elevator, widen doorways)

Build, repair or replace a deck, patio or porch

Basement waterproofing and finishing

Abatement/Stabilization of lead-based paint hazards

Replace old windows, Room additions, Finish an attic

Add a second story to your home

Replace a termite damaged sill plate (a water-damaged sill plate also)

Possible landscaping items such as correction of grading & drainage problems,

tree removal, repair a driveway and sidewalks

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USDA RURAL DEVELOPMENT

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A SIMPLE HOME SHOPPING INSPECTION TOOL

Organizing your home shopping experience affords a wise decision-making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

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