Some Lender Finance Insight

Hey Everyone!

Very interesting stuff! Just had a meeting with one of our preferred lenders, Andy Mahoney at MetLife Home Loans and learned a lot about the underwriting of loans. Wanted to give you (the consumer) some insight on what lenders are dealing with these days. When a buyer or someone who is looking to refinance their home calls a lender to talk about their loan options, they are asked specific questions about their current financial situation and the answers are plugged into an automated system called Desktop Underwriter. This system is specific to Fannie Mae backed loans and will determine what financing options a borrower may have when purchasing a home or lowering their current monthly payment.

The Desktop Underwriter will assess the borrower in 6 different categories, like assets and liabilities, then software will help determine what loan products the borrower can qualify for and the basic underwriting is done. The crazy thing is, the system requires so much verification of paperwork and where money is coming from that it makes obtaining a loan take longer. One of the items I found intriguing was if a good faith deposit made on a purchase contract equals or exceeds 2% of the purchase price (if the purchase price of a home was $200,000 then a 2% deposit would be $4,000 and the underwriter program would see that as excessive). The Desktop Underwriter would require the borrower to provide verification of where the money came from, ie. printing out bank statements and faxing/scanning to the lender. If the deposit is 1.99% of purchase price, then the borrower won't have to deal with providing extra paper work and will save time.

Another aspect of the meeting that I found interesting was some banks have more restrictive underwriting requirements than stated by Fannie Mae and can reject a loan that may normally be approved through the Desktop Underwriter process. An example of this is the number of credit sources a borrower may have- only one credit source is required by Desktop Underwriter like a car payment, while some banks require at least three sources, like two credit cards and a car payment. This seems odd to me because you would think that the banks would prefer you to not have debt. They want to verify you have debt so that you are proven to make payments on time-crazy!

Here's another tidbit that could hurt you or help you depending on the number of debt sources you keep on your balance sheet. If you have 10 months or less left on a car payment, then the bank will not count this debt against you which mean you would be able to borrow more for your mortgage. It's also possible that child support would fall under this category as well.

Many folks find this information hard to listen to, but the ins and outs of the underwriting system will either enable you to borrow more money or as Chris Farley from SNL said, "be living in a van, down by the river." If you have any questions or need guidance to make sure you're not hearing the rapids of the James River when you wake up in the morning, give me a call.

Graham Johnson ABR,CNS
Coldwell Banker Johnson & Thomas
504 Libbie Avenue | Richmond | Virginia | 23226
O 804.288.4163 | M 804.873.3504 | F 804.285.9328
www.RichmondVaHomeSearch.com