Assets

Any single deposit or a cumulative total of all non-payroll deposits that are greater than 20% of the borrower’s gross monthly income would be considered a large deposit(s). For FHA purchase transactions a large deposit is defined as any deposit that exceeds 2% of the property sales price. Both an explanation for the deposit and documentation to paper trail the funds is required. Keep in mind that this applies to all bank statements collected for the file.

Undisclosed Obligations

Sometimes borrowers may omit disclosing some relevant information. We must take note of the borrower’s marital status and number of dependents. These items alone do not indicate the borrower owes child support or alimony; however taken, in conjunction with other loan file information such as AKA’s on the credit report or the borrower’s information on credit documentation (bank statements, pay stubs, tax returns, title, etc.) they could lead the underwriter to request additional information including a copy of the divorce decree. We may discover undisclosed obligations as a result.

While a detailed and thorough review of the credit report is the first step in calculating the borrower’s total expenses, debts can be found in other locations. Pay stubs, divorce decrees, and tax returns are typical areas that must also be analyzed for outstanding debts not reporting to the credit bureaus. For instance, the borrower may not remember an automatic payment that is coming out if his paycheck.

Tax Transcripts

It takes several weeks for the IRS to process tax returns so that a tax transcript can be made available to lenders. This is a particular problem around deadline dates of April 15th and October 15th of each year. If the borrower has not yet filed and wished to purchase during these periods, it is best to hand carry the return to the IRS office and obtain an officially stamped copy. Otherwise, the closing will be delayed until a transcript can be obtained.

Documentation is not Consistent

Borrowers frequently forget to make address changes on their driver’s license, payroll checks, and bank statements. Encourage your prospects to take care of this housekeeping chore very early in the process. Names and addresses should match on all documents.

Repairs to the Property

An underwriter has the discretion to require inspections if the appraisal report seems to indicate any problem with the property. The inspections must be done by a licensed individual, and if repairs are recommended they will become a requirement for closing the loan. Typically the appraisal report does not come in until after the option period has expired, making negotiation difficult at that stage.

Past Business Losses

A customer may have operated a business in the past, which is shown at a loss on his tax returns. If the business is still in existence, the losses will be averages over the past two years and the average loss will be deducted from current income. If the business no longer exists, the customer will be asked to provide documentation that the business is closed. This may be very difficult to obtain if there was no business license or other third party means of verifying the facts. This is a significant problem for borrowers who operate a business out of the home.

Marital Status

Since Texas is a community property state, the debts of one’s spouse must be considered when a loan is underwritten, even if the spouse is not obligated on the loan. This is a requirement of all government insured loans: FHA, VA, and USDA. Many women do not change their name when they marry, so it is not always easy to tell. If a person states that he or she is unmarried, but documentation in the file shows otherwise, additional documentation may be required.

Divorce

Texas does not have legal separation. You are either married or unmarried. When a borrower is in the middle of divorce proceedings, the loan closing will have to be delayed. Even with a “separation agreement”, there is no way that a lender can determine the ultimate obligations of the borrower until the divorce is final. Even then, closing will be delayed 30 days, because either party can appeal the terms of the settlement within 30 days of obtaining the judge’s signature on the divorce decree.

Divorce is not recognized by creditors when it comes to collecting a debt. All previous joint debts will be included in the borrower’s debt ratio unless they were expressly awarded to the ex-spouse and it can be documented that the ex-spouse has paid the debt as agreed for the latest 12 month period preceding the loan application.