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This section is designed as an overview of the loan programs available and the qualifying process. Consider these general rules of thumb.

Loan Amount Limits - Conforming Loans
The maximum loan amounts, assigned according to the number of units, are listed below:  1=single family lands. 2,3&4=multi-family loans.
 

 Continental

  Alaska, Hawaii
Number of United States-48, Guam &
  Units DC & Puerto Rico US Virgin Islands
1 $ 359,650 $ 539,475
2 $ 460,400 $ 690,600
3 $ 556,500 $ 834,750
4 $ 691,600 $ 1,037,400

Jumbo Loan - Generally, maximum loan amount is any sum above the loan limit stated.

Employment and Income

  • Your employment for a minimum of 2 full years preceding the loan application is verified to show stability and continuance of long term income.
  • Borrowers with less than a 2 year history with current employer will need to provide previous employment history.
  • Frequently changing jobs without advancement in the same field or from one line of work to another is not considered favorable and could lead to unstable income. These situations would require offsetting financial strengths to be considered for maximum financing.
  • Commissions may be used as stable monthly income provided the borrower supplies copies of signed tax returns with applicable schedules to verify the amount of commission of the 2 previous years.
  • Military income such as flight or hazard pay, rations (food) allowance, clothing allowance, and pro-pay are all acceptable as stable income as long as future continuance can be established.
  • Part-time and second jobs will be considered as stable income if a 2 year history can be verified and it is likely to continue.
  • The income shown below is considered acceptable qualifying income provided a history of such income can be established.
    • Retirement income
    • Social Security income
    • Notes receivable
    • Interest and dividends
    • Trust income
    • VA Benefits
    • Unemployment and welfare benefits
    • Auto allowance and expense accounts (if taxed)
    • Rental income

Debts

  • Installment loans with over 10 months remaining payments, are included as debt.
  • Child support, alimony or maintenance payments will be included as debt provided it continues beyond 10 months.
  • Checking account credit lines are included up to the balance that is currently owed. if a monthly payment is not stated, 5% of the remaining balance with a $10.00 minimum will be used.
  • Collative loans for education are considered installment debts and should be treated in the same manner.

Qualification Ratios are an important qualifying factor in a borrower's ratio of income versus debt, otherwise known as debt ratios. The ratio percentage guidelines vary depending on the type of loan. To calculate your housing expense percentage, use calculation shown below.

Example: Total Housing Expense / Gross Monthly Income. NOTE: Gross monthly income is what you make, not what you take home.

To calculate your debt expense percentage, use calculation shown below.

Example: Total Housing Expense + All other monthly debt / Gross monthly income.

As a general guideline, a borrower's monthly housing expense and debt ratios should not exceed the amounts shown on the next page. However, higher ratios may be approved.

Housing Ratio Percentage - Ranging from 28% to 40% Debt Ratio Percentage .

Debt Ratio Percentage - Ranging from 33% to 46% Typically higher LTVs have lower ratios, and lower LTVs allow higher ratios.

Temporary buy downs and property type (primary, investor, etc.) will affect the ratios.

Compensating Factors - A borrower's ratio exceeding the requirement can be countered by any one of the following items.

  • A large cash down payment on the purchase of the property.
  • A low loan-to-value (LTV) percentage.
  • The demonstrated ability of the borrower to devote a greater portion of income to basic needs such as housing expense.
  • The demonstrated ability of the borrower to accumulate savings and maintain a good credit history or debt-free position.
  • The borrower's net worth is substantial enough to evidence an ability to repay the loan regardless of income.
  • A likelihood of the borrower's potential for increased earnings.

Credit History Late Payments - The quantity and severity of late payments are reviewed to determine the borrower's ability to manage debt.

Past Due Amounts & Collections - These are to be paid in full by the borrower and evidenced by a receipt prior to funding.

Insufficient Funds - A written explanation is required when your bank account statement reveals checks returned for insufficient funds.

Judgments - If the review of public records reveals a judgment against you, the judgment must be explained, and typically paid in full and satisfied prior to funding.

Inquiries - Numerous inquiries listed on a credit report need investigation if the report indicates the borrower has been applying for credit and the new accounts have not been established. A written explanation from you will be required on all inquiries made within the last 90 days.

Mortgage Payment Reports - All mortgages held within the last 2 years must be verified. The payment history, such as 12 months canceled checks, bank statements, or payment history supplied by the mortgage company should be provided if the credit report does not provide a payment history of 12 months on each mortgage.

Foreclosures and Deeds in Lieu - Foreclosures and deed in lieu may be acceptable after a period of 3 years has elapsed. Maximum financing generally will not be available.

Mortgage Insurance Requirements Mortgage Insurance protects the lender against loss if the borrower defaults, and is required on all conventional loans with a loan-to-value ratio greater than 80%. You can obtain a rough idea of what your monthly cost will be by dividing the mortgage amount by 2,400.

Common Conforming Programs - The premium percentages below are based on a 30 year term, and can vary slightly depending on the loan type.

LTV  Annual
Primary Residence Coverage
90.01 - 95.00%  30%
85.01 - 90.00% 25%
80.01 - 85.00% 12%
80.00 & under not required
   
Second Homes  
80.01 - 90.00% 30%
80.00 & under not required

Balloon Loan Programs - The premium percentages below can vary slightly depending on the loan type.

 LTV Annual
Primary Residence Coverage
85.01 - 90.00% 25%
80.01 - 85.00% 12%
80.00 & under not required
   
Second Homes  
75.01 - 80.00% 12%

Funds for Closing Typical Sources of Funds - All sources of funds used at closing are verified and should be seasoned for at least 3 months. Large increases in accounts may be cause for further explanation and supporting documentation. Typical sources of funds are shown below.

  • Checking and Savings Accounts
  • IRA/Keough Accounts
  • Government Bonds
  • Stock
  • Trust Account

Borrowed Funds - secured by an asset and representing a return of equity are acceptable. The payment on these funds must be added to the debt for qualifying. Examples of acceptable assets upon which loans have been obtained are shown below.

  • Certificates of Deposit (CD's)
  • Stocks
  • Bonds
  • Real Estate - not including subject property
  • Life Insurance

Gifts  are funds given to the borrower with no repayment expected. FHLMC allows gifts from a family member only, while FNMA allows gifts from anyone who does not have a vested interest in the transaction. A gift letter is required and verification of the donor's ability to give the gift along with verification of the transfer and verification that the funds have been deposited into the borrower's bank account. A minimum of 5% of the down payment must be from the borrowers own funds, except in cases where the gift is for 20% or more, then this requirement may be waived.

Cash Reserves for the conventional fixed rate and balloon programs, the borrower must have sufficient cash deposits to complete the loan transaction and still have 2 months reserves remaining without having to borrow additional funds.

Contributions are any costs that are not paid by the borrower. They may be paid by the seller or any other interested party such as the builder, developer, real estate agent, or their affiliates.

General restrictions limit the sellers contributions as shown below:

  • 3% on loans with LTV over 90%.
  • 6% on loans with LTV of 75% to 90%.
  • 9% on loans with LTV of less than 75%.
  • 2% on Investor loans regardless of LTV

The maximum allowable contribution depends on the mortgage type, loan-to-value ratio, occupancy type and mortgage insurance requirements.

Appraisals - Conventional appraisals are valid for 120 days. After 120 days, a re-certification of value is required for up to 6 months.

Second Trust Deeds Subordinate financing must be a minimum of monthly interest only payments and payments must begin immediately after close of escrow. If the financing will not fully amortize, it may not have a balloon of less than 5 years. No prepayment penalty is allowed.

Co-Borrowers may not have any other interest in the transaction (i.e. seller, Realtor, broker or loan agent). With loans over 90% LTV, the co-borrower must occupy the property. Generally, the owner occupant borrower must qualify with ratios of 38/43%. There are exceptions to this rule. If you have questions, contact me.