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Fully documented loans escape mortgage chaos

William DesPortes

You hear it on the news. I have said it in my previous columns. Your friends and family are talking about it. The United States and the entire world are in the midst of unprecedented financial changes and circumstances. Terms such as credit crunch and liquidity crisis are now common verbiage. The perceived culprit for all of this chaos is the mortgage industry, and it is publicized as though the entire industry is coming to an abrupt end. The exact origin of the chaos is debatable, but its not debatable that there are significant changes occurring within the mortgage industry. However, the industry will survive these much needed changes, and there are still good loan programs and interest rates available. How does a consumer obtain these rates and programs? A fully documented loan is the answer. The first and most important piece of a fully documented loan is credit rating and debt calculation. The score and contents of a consumers credit report are now even more scrutinized than in the past. A median score of 720 used to be considered above average or excellent. In todays environment some programs require a 740 median score and anything below a 660 may not qualify for the best rates and terms.The total amount of debts, including the proposed housing debts, is divided by the monthly income to obtain a debt to income ratio. These ratios are now less likely to be accepted once they go above a level of 40- 45 percent. If consumers dont know the content and score of their credit rating, its best to find this out before beginning to shop for a mortgage or thinking about permanent financing plans. Consumers can start by going to http://www.annualcreditreport.com. Consumers also need to be able to fully verify their income and employment as stated types of loan programs are less available and carry significantly higher interest rates. This may mean giving a lender two years of tax returns, or having a CPA draft a current profit and loss statement, or providing pay stubs, or even producing 12 to 24 months of business or personal bank statements. A two-year history in the same line of work, along with the verified income, is now less negotiable. In places such as the Vail Valley, many borrowers obtain income from a number of different sources. Or, borrowers may have income that is difficult to verify. As with the credit report, it is best to address these issues in advance and before considering any permanent financing options.Loan amounts less than or equal to $417,000 are considered conforming,” and loans greater than $417,000 are classified as jumbo or super jumbo. Right now, conforming loans, which are called that because they conform to the rules of Fannie Mae and Freddie Mac, are readily available with respectable interest rates. Conforming loan amounts are less subject to rate increases and difficulties associated with qualification. Consumers may think that there is nothing they can do if they need more than $417,000, but there may be options. A second mortgage may be attached to the transaction in order to bring a primary loan amount down to a conforming level, or perhaps monies maybe be accessed from other investments in order to meet the limits. There are many variables to consider and calculate, but the current difference between interest rates on conforming and jumbo loans certainly makes the option worth exploring. Consumers also now need to be aware of not only who it is that is providing the financing for their transaction but from where the monies are actually coming? Is their banker or broker lending money that is originating from the sale of loans on the secondary or open market? Or, is the mortgage coming from a banks portfolio lending of depository assets? Both sources of financing have their advantages and disadvantages and need to be fully explained and understood.The mortgage industry is not coming to an end and good loan programs with respectable interest rates are available. Now more so than ever, qualification requires effort and experience from both the loan officer and the borrower. If youre a borrower in search of a mortgage, qualification for a fully documented loan may be a little more tedious, but it will certainly produce a better loan program and interest rate. William DesPortes is with DesPortes, Selig & Associates, Professional Mortgage Services. He can be reached at 970-949-0653 or wdesportes@qwest.net.Vail, Colorado


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