ASSETS
1. Reserves: Have at least 2 months of PITI (principle + Interest + Hazards Insurance + Real Estate Tax) left over in some sort of financial instrument i.e. CD, money market, savings, etc.
2. Cash down payment: The more you put down the better your file will look. 20% down is the minimum best-case scenario but not the only choice.
3. Closing costs: Have enough funds to cover all of the closing costs
4. Large Deposits: Any deposit that is over 50% of the monthly income. This is a red flag for an underwriter to question the source of funds
5. Watch out for overdraft: This can indicate a bad habit.
6. Keep personal accounts separate from business accounts: Some accounts can be disallowed from being used because of the co-mingling of assets.
7. Have enough Cashflow for your transaction: You will have to have the following:
Down payment Amount
Reserves
Closing Costs
EMPLOYMENT AND INCOME
Employed in the same line of work for min last 2 years: Shows that you have stable employment and income and not job hopping
The same type of pay structure for the last 2 years- 1099, w2, etc: Shows that you have stable employment and income and are not job-hopping
Income same or increases over the years: If income has decreased without a substantial reason then the underwriter will use the lessor income for calculations
Bonuses have happened for the last 2 years and plans to continue: To show that you have and will be making so to use in your calculations
Not changing employer during the mortgage process: Will have to wait for 30 days of paystubs to show that you are at the new employer
If self-employed, income increases or same over last 2 years: Reason same as “4C”.
Length of being Self-Employed: The longer you are self-employed the better your profile looks. It takes a min of approx. 3 years to show that you are established.
Changing income status: You cannot go from w2 to self-employed. But you can go SE to w2. W2 income is basically a secure and guaranteed income whereas a self-employed income is not stable and is not guaranteed income.
RESIDENCE
Last 2 years residence: This shows that you do not bounce around and are stable in your residency.
Living with relative: This is OK. Students are acceptable, partner or spouse is acceptable but an underwriter has the authorization money order/transfer – ok to question and request documentation.
Rent free with NON-relative: Must have a solid reason that is a make sense scenario i.e. partner or spouse is acceptable, if any other reason the underwriter has the authorization to question and request documentation.
Rent paid by cash: This is not ok. Paying by cash might indicate a late payer or behind in payments. Cash paid to a private landlord is not acceptable. Cash paid to a management company is acceptable.
Acceptable Rent Payments: Rent paid to a management company. Paid by check, cashier check, money order or electronic payment.
CREDIT
- Credit score: Best best-case scenario is having a middle credit score above 700
- Credit availability: When you leave a balance of 30% or less on your revolving lines of credit, helps increase your credit score and shows that you can manage your debt.
- Student loans: Pay them on time.
- 2 yrs. History: The longer the credit history the better the credit scores will be because you have that time of history to show how you can handle your finances.
