If you’ve been having trouble getting approved for a mortgage recently, you can take some consolation in the fact that you’re not the only one.
Before the housing bubble burst in 2006, it was extremely easy to get a mortgage, even if your credit was decent at best. Banks and lenders even offered mortgage loans without needing to see documentation first. Borrowers simply told loan officers how much they made without being asked to verify their income. Lenders of questionable legitimacy even offered NINJA mortgages, which stands for "no income, no job, no assets" loans.
After 2006, standards tightened, and today most people hear “no” many times before they finally get a “yes.” In this article we’ll explain the reasons why.
At one time, lenders had no difficulty getting their loans guaranteed by Fannie Mae or insured by the FHA. They only had to repurchase a mortgage if fraud was evident. Now, the FHA will refuse to insure if it believes that the lender did not adhere to required guidelines, forcing that lender to do a buyback to replace the money on their warehouse line. Buying back too often can be financially detrimental, especially to a smaller lender, and as a result they are highly cautious about which borrowers they approve.
Stricter Income-Verification Standards
Lenders now pay closer attention to borrower income. The disappearance of low-documentation or stated-income loans have made it difficult for self-employed applicants to get a mortgage, and even those who are employed by another party may have their application treated with caution if they work in a field where cash remuneration is common. (For example, wait staff and tips.)
If an applicant is on maternity leave, they will need to present evidence that the leave is paid, otherwise they will have to buy when they return to work or try to qualify for a mortgage based on their partner’s income.
Eligible Income Restrictions
Many people earn income from a second job to improve their financial stability, but lenders do not typically consider such income unless it is documented on a W-2 and has come from:
- The same source for 12 months OR
- The same field for 24 months without an interruption exceeding 30 days
When an applicant is paid in cash at their second job, lenders may not consider it even if you deposit the money in your account and declare the income on a W-2. They now require verification of all deposits that are not made via a direct-deposit payroll system, and if this proves impossible, the application is usually denied.
Stringent Credit Requirements
Being pre-approved is no longer a practical guarantee that you will get the loan.
Lenders must run your credit report again just before closing, and if your report changes in any way afterwards (for example, a credit inquiry), you will have to wait until you can prove that the inquiry has not resulted in any new debt. Even using your credit card could cause your score to dip below lender guidelines.
Lending standards are so strict now that even borrowers who are genuinely qualified can end up being denied. If this happens to you in Oklahoma, don’t take it personally. Instead, contact Attorney B. David Sisson for a no-obligation consultation today. If credit report clutter is affecting your ability to get approved for a mortgage, talk to B. David Sisson to see if bankruptcy might be a good option for you.