You would totally appreciate your mortgage advisor if you knew all that goes into getting a mortgage loan today. There are numerous programs, underwriting guidelines, processing strategies and systems, rate-lock strategies and, last but not least, working with and coordinating the many professionals involved in a deal to get to the closing table.

Mortgage players: The major agencies that buy loans are Fannie Mae and Freddie Mac. Government entities such as FHA and VA insure loans according to their specific guidelines. Large institutional buyers buy pools of the larger loans, which go from standard to alternative lending situations. Every loan is different, and when specific loan situations pop up, knowing which programs to keep in your back pocket can be the make or break on getting your loan. (After reading this you may know more than your loan guy.)

Situations

When disputed trade lines are on your credit report: Go either FHA or Freddie Mac. Both agencies accept them as disputed and do not require any other action. Fannie Mae needs them removed and new credit run.

When you have large deposits, multiple cash deposits, transfers etc.: Go Freddie Mac. Why? Only Freddie requires the most recent 30 days of assets; this gives you ample time to stop moving money into the verified account in order to produce a clean paper trail transaction history.

If you are self-employed: Go Freddie Mac. The automated underwriting program, “LP” in most cases, will return only one year of business and personal tax returns allowing you to use the most recent income numbers.

When you have erratic employment history: Go Fannie or Freddie. Conventional does not have the specific employment history requirements that FHA does and therefore allows you more flexibility. The general rule is less than six months job gap, three to six months at current employer. Over six months job gap, minimum 6 months at current employer.

When receiving gift funds for a down payment and closing costs on a primary residence: You can go Fannie Mae, Freddie or FHA. Donor’s ability: If the gift Donor does not wish to provide a 30-day bank statement of their assets to source the gift, go conventional only. With proof of deposit in the borrower’s account and a signed gift letter, the ability of the donor has been met.

Peeling paint, small deferred maintenance: Do not go FHA. FHA requires peeling paint, and any type of deferred maintenance, to be repaired prior to closing. Conventional does not (unless an appraiser notes it).

Condos with deed restrictions, and minor litigation: Go Fannie Mae. Fannie allows for many types of deed restrictions and is OK with minor, non-structural litigation (example: slip and falls or unit owners suing each other).

Minimal credit profile: Go conventional.

If you have minimal income but large assets: Go conventional. The Asset Depletion program works great as a form of supplemental income by taking a percentage of employment-based assets like a large 401K, using a percentage of the balance and dividing it by 360 months to come up with a monthly figure to qualify.

If you need or want to use business funds for down payment: Go FHA only. FHA does not have any issues with business funds. Conventional requires three months of the borrower’s business assets and the underwriter must do an analysis of the deposits, and may ask for a CPA letter stating that using those funds for a down payment will not impact the viability of the business.

If you need the rental income on your existing property to qualify a/k/a a departing rental: Go conventional. FHA now has a 100-mile minimum rule and requires 25 percent equity in the departing residence for the use of any type of departing rental income when converting from a primary to investment property.

If you took a second mortgage after you bought your home (not simultaneously) and are refinancing: Go FHA. FHA is the only agency that will consider the transaction rate/term (not cash out) if the second lien has not been used in the most recent 12 months. Max LTV (loan to value) is 97 percent compared to conventional cash-out limitations of 80 percent.

If your DTI (debt to income) is high and you have an auto lease with 10 payments remaining: Go FHA only. FHA is the only agency that will omit the auto lease payment; as long as DU (automated underwriting engine) automatically omits it, the underwriter will not override it. The lease cannot be paid down to 10 payments, however.

If you have a payment arrangement, or garnishment, on a judgment or lien: Go FHA only. FHA with only three months of an established payment history will allow you to proceed. The payment must be included into the DTI. Conventional requires the judgment be paid in full prior to closing.

Refinancing for max cash out? FHA still goes to 85 percent.

If you need to add a borrower, not currently on title, to qualify on cash out transaction: All three agencies require six months “seasoning.” Borrowers need to be on title for six months.

When you have unpaid collections and unpaid charge offs: Depends on the amount. Fannie Mae does not require anything to be paid regardless of the amount when it’s a one-unit primary residence only. Two to four units primary requires payment when the total amount exceeds $5000. FHA requires collections and charge-offs paid when their total amount equals $2000 or more.

If you have a recent Chapter 13 discharge: Go FHA. With only 12 months history or discharge, you may proceed. However, it will be downgraded to a manual underwrite because it’s less than two years discharged. Additional conditions will apply

Recently modified mortgage: Go Fannie Mae. Fannie has no seasoning on a modified mortgage; FHA requires a clean 12-month history of the modified payment and a copy of the modification documentation.

Knowledge is power and it never hurts to be aware of what your options are. I would guess that you don’t have access to the guidelines needed, or the experience to underwrite your own deal, but that’s where we mortgage professionals come in. Now, go get your money!

By Carl Guzman

 Carl Guzman, NMLS# 65291, CPA, is the founder and President of Greenback Capital Mortgage Corp. He is a residential financing expert and a deal maker with over 25 years’ experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com, [email protected]