Thursday, April 4, 2013

Five Reasons Your New Home Buyer May have Trouble Getting a Mortgage

If your new home buyer is lucky enough to get a mortgage for construction of their new home, count yourself fortunate. Tract home builders have a definite advantage when it comes to new home buyers financing a new home.

First, the big tract builders have communities where it’s easy to get comps. They also have their fingers on the pulse of every mortgage broker in the US. These brokers line up with deals for the tract home buyer.

If you are a small builder, whether you are a site builder, a modular builder or a prefab builder, it will always be harder to get your prospective new home buyer through the mortgage gauntlet.

Here are five reasons your new home prospect might have trouble getting a mortgage.

The Lenders are Paranoid
Mortgage lenders naturally want to avoid their past mistakes, so it's not surprising that they would look more closely at applicants' financial situations. But changes in the secondary mortgage market have made them extra cautious.
If the FHA feels the lender didn’t follow the guidelines, they can refuse to insure the buyer’s mortgage and the lender has to pony up the cash to replace the funds.
With lenders facing greater responsibility for the loans they originate, they have no choice but to be extremely cautious in approving borrowers.

Having a Second Job can Actually Hurt
Does your prospective new home buyer earn income from a second job? While this money might be significant to them, providing some real breathing room in their monthly budget and stability in their finances, lenders might not care.
Income from a second job is generally not allowed, unless it has been derived from the same source for 12 months or within the same exact field for 24 months without any more than a 30 day interruption. And it is usually not allowed at all if it is not documented on a W-2.
Unfortunately, many people receive the income from their second job in cash. Even if they deposit the cash in their bank account and declare the extra income on thier W-2, lenders may not be willing to consider this income.
Lenders are now requiring all bank deposits that are not direct deposit payroll be verified. In our previous life, if the borrower's income supported deposits... explanations weren't required. Because it's virtually impossible to verify cash deposits, loans are being denied.

Lenders are Tightening Income Verification Standards
Lenders nowadays will rigorously scrutinize any income that borrowers want to be considered in their ability to repay a loan. There are no stated-income or low-documentation loans anymore, which is bad news for self-employed borrowers. But they aren't the only ones having trouble. Lenders' fears about cash deposits mean that people who happen to work in an industry where being paid in cash is common, such as the restaurant business, might have trouble getting approved.
If your prospects are expecting, they should proceed with caution because often, babies are born and parents have a change of heart about working full time or working at all.
Borrowers on maternity leave will need to validate that they are on paid leave; borrowers not on paid leave can buy before the delivery while their income can be verified, buy when they are back at work, or try to qualify on one partner's income.

Lenders are Scrutinizing Credit Reports
If your prospective new home buyers manage to get preapproved, don't let your guard down. If they take any action that affects their credit score or any item on their credit report, they'll have to explain it to their lender. Keep checking with the buyer’s lender for any changes that may hinder them getting a mortgage. Buyers are typically reluctant to tell their builder bad news.
Your new home buyers have to write letters for all inquiries on credit that may show up after they apply for a home loan and the loan will now wait to close until they can prove they have taken on no new debt due to the inquiry.
Borrowers who want their mortgage approval to stick shouldn't open any new accounts or miss any payments. They shouldn't make any large purchases or close any credit card accounts, either. Lenders must re-run borrowers' credit report immediately before closing, and any changes since the time of application can create problems. The worst are Lowe’s and Home Depot credit as the new buyers want to be able to start buying things for their new home and apply for credit as soon as they are preapproved. If they have to use a credit card at all, even for a tank of gas, they should pay off that amount immediately.

Lenders Uniformed and/or Inexperienced with Modular Construction
Gone are the days when anyone who could fog a mirror could get approved. So make sure buyers don't pick just any old loan officer - find one with expertise in modular and its unique payment schedule. There is nothing worse than losing a sale because the buyer’s bank or mortgage company has never worked with a modular payout schedule and demands that you use their site built payout.
The biggest issue for a consumer is to work with a good loan officer who really understands the realities of modular housing, and who will know and prepare the borrower on what to expect... a good originator will ensure that there are no surprises that will kill a transaction.

If you haven’t asked if they have been preapproved before you start quoting a house for them, then you deserve to spend 40 or more hours preparing quotes, checking their lot, if they even have one yet and planning how you are going to spend the profit without actually building them a new home.

Lending standards are so much tighter these days that even seemingly qualified borrowers are having trouble getting approved as banks try to avoid repeating their past mistakes.

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