Justin Perry's Mortgage Blog

There is a great misconception right now about the availability and use of stated income mortgage loans.  Yes, they are still available.  But in most cases they are available to the strongest borrowers with great credit (fico score of 720+).  The new term for stated income loans is "liar loans."  They were never designed to allow people to grossly overstate their income.  What low documentation mortgages were designed to do is allow people with very strong credit profiles to get a mortgage loan without fully documenting their income and/or their assets. 

Let me give you two examples of when a stated income mortgage loan should and should not be used. 

Example A) A self-employed doctor with a private practice.  The doctor has excellent credit and plenty of assets in a number of investment vehicles such as mutual funds, IRAs, and money market accounts.   The doctor has two houses and one is a 4 unit investment property from which he receives rental income.  His debt to income ratios are very low and he has never had a late payment on any of his debts, most importantly his mortgage.   In this case,  the doctor could easily document income and assets, but it would be very time consuming.  This is a great example of a borrower who could get a low document loan to make the loan process easier.

Example B) A salesperson at a software firm who is looking to buy a new home.   The salesperson had a couple great months and sees the income continuing for years to come.   The salesperson doesn't have that much saved up and has very little to put down on the real estate purchase.   In this case, the borrower doesn't have a history of income and needs to state the income and assets based on the assumption of the recent sales commissions. 

Low document mortgage loans do serve a purpose and if not abused they are a great product to make the loan process easier for good borrowers. 

In my opinion we will see these types of mortgages become more difficult to obtain and I agree they should be.   If you or someone you know needs a mortgage and finds it cumbersome to document all income and assets, contact me and I can go over the options that are still available for low documentation mortgages in NH, MA, CT, ME, RI and FL.  In some cases you can even get a low document mortgage loan without any increase to the mortgage rate.

Right now there are a lot of changes taking place in the mortgage industry.  Some of the largest lenders in the country have gone bankrupt (American Home Mortgage) and the banks that remain are tightening their guidelines.  A massive spike in foreclosures, coupled with a soft real estate market has caused bank's profits to plummet.  Whether you are a Realtor, a potential homebuyer, or looking to refinance; there are a few things you should keep in mind when working with a mortgage lender:

• Make sure your mortgage lender is FHA approved.   With Alt-A and subprime loans going by the wayside it is more important than ever for mortgage lenders to use FHA (a government sponsored mortgage product).
• Think about how you will document your income.   Low document loans now come with lower loan to value thresholds and higher credit score requirements.   If you want to get the best mortgage rates today you have to fully document your income.
• Be patient.  It is becoming more and more difficult to place loans.  Banks are changing their guidelines several times a day so make sure your mortgage banker has experience with various products.  Also, underwriting turn times are in some cases backed up a couple weeks. 
• Become familiar with loan sizes.   Jumbo loans (greater than $417,000) have seen big rate increases and tougher underwriting requirements over the past week.  If you need a jumbo you might have to fully document your income and your assets to avoid an increased rate.
• Talk to a mortgage broker!  With so many banks going out of business it is important that you speak with a mortgage broker who has access to 100s of banks.   You will continue to see different lenders close their doors so don't let that hold up your closing.  In the case of First Call Mortgage Co., we are a direct lender of our own funds.  We can lend on your loan if it makes the most sense OR we can broker you a loan through dozens of different banks.  So for example if your mortgage loan is with bank XYZ, and they go bankrupt we could lend on the loan ourselves or we could broker it out to bank ABC. 

In such a volatile market it is most important that you know and trust your mortgage banker.  Please call me today if you have any questions or concerns.