So You Want to Get a Home Loan? Here Are the Ground Rules You Should Know
Did the gloom and doom statistics in the introduction scare you? Good. They should. First of all, loan officers in sub-prime shops, are, with little hyperbole, not terribly bright, and encouraged to lie through their teeth in order to make a sale. Ergo, you should arm yourself with all the knowledge you can in order to make sure you’re executing a good decision and being given all the facts.
Additionally, like all things, the equity boom will come to an end. There will no longer be free money for everyone. And people who indulged overly excessively in the cash-out refi party will pay for bad decisions they made. This doesn’t mean that it’s necessarily a bad decision to refinance. There are many loan products out there that make perfect sense for certain people. The trick is figuring out which certain person you are and which loan product will suit you best. The holy trinity of home loans is: income, credit, equity. These things, or the lack thereof, will shape which loan program you qualify for and for what rate. So we’ll go through each of them.
You Want to Get a Home Loan? Here Are the Ground Rules You Should Know
Income is usually calculated monthly for the purposes of qualifying for loans. The first question that a loan officer will ask you in regards to this topic will be: how much do you earn per month? To calculate the answer, assuming you are a W2 employee, take your gross income and divide by twelve. (Doye).
That’s your income. Sometimes processors and underwriters will use a slightly different variation to calculate income, but in general, you’re pretty safe if that’s how you calculate it. If you’re self-employed, you have some options.
Self-employed borrowers can show 12 months of bank statements, all pages, either from a personal or a business bank account, in order to demonstrate income. If the bank statements are from a personal account, all of the deposits will be used, but if the statements are from a business account, only a certain percentage — usually 75% — of the deposits will be used.
And, to be clear, when I say 12 months of bank statements, I mean 12 months, all pages, from the same account, starting from whatever month it is when starting your refi, and going back 12 months. So even if there is nothing on the last page of your bank statement other than the bank logo, you’ll still need to give it to the loan officer. Bank statements are a huge pain for this reason. Some banks take up to six weeks to get you the statements, so keep that in mind when figuring out when you want your loan to close. You should also consider the same for Foreigner Loan Singapore.
Also be advised that most lenders will not count transfers. Only deposits will contribute towards your income. After all of the monthly deposits are added up, an average income per month will be computed by dividing the sum of your monthly deposits by 12.
You will probably also need to provide a business license. If you don’t have a business license because you are, say, a consultant, many lenders will accept letters of recommendation with contact information from three clients.
I’ve never even heard of a lender calling so much as one of these clients, so if you are wary of giving out the contact information of your clients, keep in mind that they most likely will not receive a call. If you’re retired or disabled, you will need to have your most recent social security award letter and/or disability award letter.
The good news is that since social security income and other forms of government income is not taxed, you get to multiply your earnings per month by 125% to figure out your income per month.
People earning pensions will need to provide an award letter or a recent statement. “Recent” for the purposes of the lending industry means within the month, and the award letter will need to show that you’re eligible for the income for at least two more years. So if you start your refi in April 06 and it does not close until May of 06, you’ll need to have the April and May statements, and might need to show that you’ll be getting these payments past May 08.
Alimony and child support recipients will need to supply cancelled checks and usually the divorce decree or child support decree, and a copy of all the kids’ birth certificates.
The income from child support will only count if the child can expect to be in receipt for the next 24 months. So if your kid is 17, you can not count the income because, in 12 months, you won’t be getting any more child support.
Anyone who has wages garnished for any reason say a divorce, will need to provide the divorce decree, or paperwork detailing the reason for the garnishment and for how long it will continue. If you can’t show your monthly income with bank statements because you work in a cash-driven industry, or your money is hidden in some offshore account or in your sock drawer, don’t panic. There are stated income, no doc, and low doc loan programs. Different banks treat these varying levels of income documentation in slightly different ways, but the basic idea is that you claim that you make a certain amount per month, and they take your word for it.