Mortgage Solutions for Smart People by Manny Kagan

Author:Manny Kagan
Language: eng
Format: epub
Published: 2018-07-18T16:00:00+00:00

When a borrower applies for a mortgage, the first question the lender asks for is proof that the borrower will be able to make monthly payments on time for the rest of the mortgage life (in most cases 30 years). This is naturally absurd—no one knows what will happen tomorrow, just take a look at what happened to the world economy since the end of 2008. In the general underwriting formula of 4 C’s, the first C stands for Capacity. It is supported by the in-lending business concept “pay as agreed”, which starts when borrowers sign the “dotted line” of their final loan documents. What is Capacity and how it is measured? Or even more important for this book, how can you satisfy a lenders’ needs and prove your capacity? The main document of proof is a Federal Tax Return (1099) and W-2, for the last two years, plus a current paystub for one month. Since the majority of borrowers are employed and get a W2 form, this can be a simple step. To qualify for a loan, their lender calculates their total monthly payments, which include principal and interest, as well as their prorated monthly payments, for property tax and monthly insurance. If it is a condominium, the formula will also include the Home Owners Association dues (HOA). Some loans have also mortgage insurance (MI). After that other monthly liabilities,, like monthly car payments and student loans, and revolving debts like

monthly credit card payments, which are reported in the credit report (and is part of the third C—Credit, which I will discuss later) are added. After this concoction is put together, the final number is divided by the monthly income, and the amount cannot exceed 45%.

(With the new government regulations, that are supposed to start in January 2014, the ratio will go down to 43%.) Sometimes, depending on special underwriting guidance and restrictions, ratios might, even currently, be lower. Meanwhile, some portfolio lenders will allow for a ratio higher than 45%, with the compensating factors, like low loan to value, and high reserves (part of the fourth C—Capital).

But let’s get back to the income part of our equation and take a look at the real world. There are many ways for people to earn money, and different ways to report it.

Marcelo, who is in his early 60 s, was working as a project manager on different construction projects. After being consistently employed for 35 years, he lost his job in mid- 2009. For the next two years, he looked for a new job. The family had enough savings plus their mortgage was subsidized by the rent from the in-law unit he had built in his house. His family has been my clients for many years, and I have helped them finance, purchase, and refinance their home a number of times. When he finally found a new job with a good salary, he came to me for refinancing since interest rates were quite low. On the surface, everything looked all right.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.