May 4th, 2012 8:41 AM by Michael Iltis
Over the past three weeks we have been covering what constitutes “the perfect loan”. In this final installment we will look from the lender’s side and their goals when it comes to approving applicants.
If you were previously a homeowner and sold your home in a short sale, or if you own a home now and plan to keep it as an investment or rental property, there are new and specific underwriting guidelines created just for you. In these cases, full disclosure of your credit and homeownership past can potentially eliminate unforeseen mortgage approval woes.
For instance, FannieMae has a new underwriting guideline called “Buy-and-Bail,” for current homeowners’ planning on keeping their existing home as an investment/rental property. Properties not meeting the 30% equity test for “Buy-and-Bail” result in additional asset requirements to purchase a new home. Buyers with a short sale history may have to wait two to three years before they are eligible for mortgage financing again. Full vetting of your previous mortgage life will save you the dreaded we-have-a-problem call from your mortgage lender.
The reason the mortgage approval process is now so rigorous is simple. Avoiding defaults and loan buybacks has become the primary goal of mortgage lenders. Higher standards are reducing loan defaults, which should mean fewer foreclosures in the future. Government data shows that less than 2% of loans originated in 2009, that were resold to Freddie Mac and Fannie Mae went into default after 18 months, down from more than 22% default rates for 2007 loans.
So when your lender requests specific documents from you, give it them just “because they said so.”
PERSONAL FINANCE | 3/09/2012
Mark Greene, Contributing author to MoneyBuilder http://blogs.forbes.com/moneybuilder/