Mortgage seekers hit new roadblocks

Mortgage rates on conforming loans up to loan amounts of $417,000, and $729,750 in high-cost housing markets like San Francisco and New York City, are attractively low -- hovering close to 5 percent. That's the good news. The challenge is getting through the approval process.

Several years ago, one couple bought a home in Hercules, a suburb in the San Francisco Bay Area, for $650,000, with no cash down payment and no documentation of their income, employment or assets. They would not have qualified using conventional financing with full documentation. Their income didn't support a $650,000 mortgage.

Today, a buyer is having difficulty getting approved for a conforming $417,000 mortgage even though his credit score is high, his debt-to-income ratio is low and he is putting 30 percent cash down. His file, which is now a couple of inches thick, is caught in the quagmire of underwriting.

The problem from the underwriter's standpoint is that the borrower has income from several sources. If he was employed by the government and received one W-2 from his employer each year, income verification would be simple. Self-employed individuals are having a much more difficult time getting approved.

This doesn't mean that you shouldn't apply for a mortgage if you're self-employed, or have multiple sources of income. Just be prepared for a long loan approval process. In one case, the borrower's file took 31 days to get through underwriting.

And, steel yourself for frustration. You'll be required to document everything, which can include requests that seem ridiculous.

One borrower was asked to write a letter explaining why he made less money last year than he did the year before. He was an attorney in his 60s who decided to work less. He handily qualified for the mortgage on his current income.

Borrowers who have income from investments should be prepared to provide documentation about these investments. Even if you qualify without using your investment income, if it's reported in your income tax return, the underwriter is probably going to want full documentation. ...CONTINUED

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