In this week’s episode, Brian and son-in-law Tim talk cleaning your collections, owning an outhouse, and barriers for business owners.
This week’s highlights:
- Tim talks collections and credit scores and how they affect your mortgage
- Brian discusses ‘nonstandard’ properties
- Tim details the mortgage qualifications for business owners
How much do credit scores and collections impact your rate and closing costs?
This week, Tim told a story of a client who found out they had a bill in collections pinging their account halfway through their refinance process. As their loan was moving through underwriting, collections popped up as a red flag, and the client’s otherwise clean score dropped down from the high 700s to 680.
Tim had to warn them they would now qualify for less than favorable rates. That collection dropped the client ¾ of a percent of their loan amount, and a $340,000 loan balance suddenly had $25,050 more dollars in closing costs.
Tim ran a what-if simulation, and thankfully the client’s credit score would rebound once the collection was removed and actually would jump a couple of points higher than the starting score!
Tim helped his client contact the reporting agency; and got in writing that the collection had been removed before going forward with the loan process.
Learn more about how your credit score affects your mortgage.
What kind of properties are hard to finance?
Next Brian outlined a few tricky property types that fall outside the norm for both selling and buying:
1.) Accessory Dwelling Units-
Brian said a client of his found a new house that has a kitchenette, bathroom, and bedroom in the basement…and you can access it from a separate entrance from the outside.
This type of property is called an ‘Accessory Dwelling Unit’- which is an independent unit from the main part of the house. Many people choose to convert their garage into an ADU, and often will rent it out on Air BnB. Brian says this is permissible as long as the zoning for your municipality allows it, and generally, you will need to find comparable home sales that also have an ADU to show Fannie Mae.
2.) Seasonal homes –
Seasonal homes are typically those with no heat source and no bathroom (outhouse); such as rudimentary up-north cabins used for fishing excursions.
Brian says Fannie and Freddie find year-round occupiable homes with a heat source other than a fireplace to be most appealing.
From outhouse to outdoor patio, learn about features of your home in the home appraisal process.
How do I apply for a mortgage as a business owner?
Lastly, Tim talked about the new requirements for homebuyers who own their own business.
If you are a business owner applying for a mortgage or refinance, you will need to show:
1.) Year-to-date profit and loss statements, unaudited and signed by the borrower
2.) Profit and loss statements for two months prior to the month of mortgage application
3.) Corresponding business asset statements for those two preceding months
Fannie and Freddie need to see that bank statements mirror your monthly profits and losses and verify the correct income.
Read other first-time homebuyer requirements.