Note: The following guest blog was written by Senior Mortgage Consultant, Sam Thompson, with Community & Southern Bank.
For those looking to finance a home, mortgage underwriting guidelines are still tight, whether you are putting the minimum 3.5 per cent down and going FHA or have 20 per cent down for a conventional loan. There is no question that the tighter underwriting guidelines have done a good job over the past four years of cutting down the default rates and have obviously assisted in stopping the foreclosure bleeding that was so rampant.
Having said that, it may not be pleasant for you to try to explain and document to an underwriter why you have a large cash deposit in your checking account or where your down payment came from in the first place. If you are self-employed or just recently started a business, you may not be able to get a loan at all as lenders must go by what you are reporting as net income on your tax returns and will then verify with the IRS that the returns you have provided are, in fact, the same returns you actually filed.
Such checks and balances that were created to offset some of the outright fraud of the past makes the loan approval process difficult and sometimes even trying. As the default rates continue to improve, perhaps the writers of these guidelines will take notice and allow those that have demonstrated their creditworthiness over time to have a little more leniency on some of these requirements that even drive loan officers to the brink.
So with that said, the best advice I can give the average home buying prospect for now is to open all of your drawers and spill out all of your guts until we quit asking for pieces of paper. Only then will you pass “Go” and be able to collect your $200. And while you’re at it, better do it quickly before the house you saw this morning is under contract!
Sr. Mortgage Consultant
Community & Southern Bank