Archive for FHA
In a huge contrast to how things were a few years ago, these days it can be harder than ever to qualify for and close a San Diego mortgage loan.
Besides Freddie Mac, Fannie Mae and FHA having tighter rules, many lenders have more strict guidelines in place for financing that are called, “overlays”. Knowing which lenders have what overlays does help us place your San Diego home mortgage with a lender that will give us (and you) the fewest problems. I have come up with a list of the 5 most common hurdles that we have seen in the past 2 years that can and will keep your San Diego mortgage loan from closing. These apply if you are looking to buy real estate in San Diego or refinance your existing home.
1) You Owe Too Much Money.
This is one of the basic 4 C’s of lending. When you are applying for your new San Diego mortgage loan you have to show a CAPACITY to pay it back. The fact is, guidelines are changing rapidly and on Fannie Mae loans the debt to income ratio is being dropped from 55% to 45% (this was up to 60% last year). These ratios do not include food, utilities, auto and life insurance, auto expense, medical expense or any discretional spending. If you have balances on a lot of credit cards and car loans, you might owe too much money to qualify.
2) There are Issues with Your Tax Returns.
All loans today (with a few VERY rare exceptions) are done with full documentation. This means to qualify for your San Diego mortgage loan we will need to show underwriting your Tax Returns for the last 2 years. In the past this has mainly been a problem for people that are self employed because of “creative accounting practices” and excessive deductions. More recently I have seen issues with W2 employees ranging from non reimbursed tools for construction workers and mileage deductions for sales people to rental income not being fully disclosed or even shown on the wrong schedule of the returns.
3) The Property Does Not Appraise
This is another one of the 4 C’s of lending, COLLATERAL. It seems basic, but a lender will not loan you more than a home is worth or in this market 96.5% (FHA only) of what it’s worth. With the new HVCC guidelines and the big drop in San Diego home prices, many homes and condos are not getting an acceptable appraised value. It has always been said that Real Estate is a local business and here in San Diego our local market is changing at a rapid pace. We have been seeing a lack of inventory and multiple offers on listed properties which should show that supply and demand is pushing values higher but with the new appraisal guidelines many appraisals are coming up short.
4) The Condo Association is Broke or There Are Too Many Rentals in the Complex.
Getting condo financing for anything over 80% Loan to Value is impossible right now for any financing other than FHA. Both FHA and conventional sources of funding are getting stricter on condo financing and it’s actually easier to get manufactured home (think mobile home) loans then loans for condos because of a few big hurdles. Many San Diego condo complexes don’t have the reserves required to qualify them as lendable because they have too many people that are late on their dues or that have been foreclosed on. The other reason is that complexes are being turned down is that there are too many rental units. Lenders are now requiring that over 50% of the units need to be owner occupied and many in our area are not. This is why we check the financials, default levels and owner occupancy levels early in the process of getting your San Diego mortgage loan approved.
5) You or the Property Don’t Qualify for Private Mortgage Insurance.
In recent years (before 3 years ago) if you didn’t have 20% for a down payment you could just get a second mortgage. There was no problem doing a refinance or purchase loan in San Diego because there were companies lined up willing to loan up to 100% of a property’s value with a FICO score as low as 580. These loans went away almost overnight when property values started dropping and the only option besides FHA (which is government mortgage insurance) is to get PMI or Private Mortgage Insurance. As with everything in lending, these policies are harder to qualify because they require a lower debt to income ratio and a higher FICO score. Also, private mortgage insurance companies will not issue a policy on a condo.
These are just a few of the reasons why it is more important than ever to work with a local San Diego mortgage expert. If you have any questions or would like to pre-qualify, give me a call at (619)285-2921.