Listed below are a few underwriting tips of the trade, that we use in a tight spot when qualifying clients. Not everyone knows about these underwriting maneuvers, so we thought we would share – as there are many ways to make a file go right! We have plenty, but here are some of the most useful tactics:
Future Rental Income
For investment purchase transactions, did you know that you can use future rental income to help you qualify ? This feature makes qualifying for an investment purchase quite easy, as this income can be used to directly offset expenses for your new home purchase. The only thing to keep in mind is we will need to order a rent schedule, which costs an additional $150 on the appraisal charge, so the appraiser can confirm what market rents are for us to use as income. Only 75% of the gross rent can be used to offset the expenses of a new property. You can always take the expenses to zero by using this income, but not all transactions can then use any surplus income that would possibly be derived from rental income, just depends on your exact scenario.
Freelancers can qualify! In many industries, there are contract workers that have multiple jobs a year, and that is just fine by us (we’ve seen many). All incomes earned are added together and divided by 24 months. Some people might claim this income on a schedule C (1099), some may have both W2 & schedule C earnings, we can use both! Senior underwriters at our firm understand this type of income well, as many consumers are not solely earning one W2 a year. Income can be complicated!
Do your taxes to improve self-employed earnings
If income levels didn’t quite cut it on your last tax return (write offs, etc.), you may want to consider doing the most recent year’s return (if the timing makes sense) and showing more net earnings (whether it be for self-employment or rental income usage). Want some guidance? We know the equations used to determine income levels and can help advise how much earnings are needed for a particular loan size/purchase price you are looking to achieve. Just ask us to assist before you finish up your return.
Omit Debt from mortgage application
Did you know that you can remove any non-mortgage loan (auto or personal) that would be paid in full in less than 10 months? You can also pay your credit card debt to zero (if cash allows), and omit any monthly payment from that previous debt. Either one of these techniques can be used to move your debt ratios (debts divided by income) lower and into qualifying range my removing monthly debt liabilities normally used in computing ratios.
Co-Owned Real Estate
Did you know that if you are solely on title (not on the mortgage) to a property, you will not have to count any of the liability (mortgage/property taxes/insurance/HOA) against you on your debt-to-income ratios for a new mortgage? This is helpful for those who might be on title to a relative’s home but perhaps not on the mortgage and don’t want to have that debt on their real estate mortgage application to deal with while trying to qualify.
Lastly, we get lots of questions on self-employment income, is it usable? The answer is yes! Please review our detailed discussion on it here!
- Appraisal Not Required? Maybe Not! Find Out Before You Place an Offer to Buy a Home!
- Best Practices to Improve Your Credit Score & Interest Rate Pricing
- Can I Qualify with Self-Employment?
- Closing Cost Breakdown
- Empire of America (EOAC) – 40 Years of Residential Real Estate Lending
- HELOC Versus Cash-Out Refinance