4 income discoveries that can kill your loan

I still receive a lot of calls from clients who think that just having a good fico and some money in the bank means they'll easily qualify for a home loan. The truth is, the most important thing now days is income. That's probably because during the "housing boom" between 2004-2007, income was probably the least important thing. We all know where that got us. While most lenders do use tax returns and pay stubs to preapprove their clients now days, here's a few things they should discover before issuing a preapproval.

1. 2106 expenses and unreimbursed expenses. One of the most talked about changes when one discusses the current deficit in the US is the tax code. It's been called dated and has a lot of loopholes. Tax agents seem to know all about this. I've even prequalified clients who, unknowingly, had unreimbursed expenses. Loan Officers are missing these. Newsflash: Underwriters don't miss these unreimbursed expenses. If you miss it, you might be putting your borrower in a tough situation where they can't close their transaction. Make sure you're Loan Officer is checking this.

2. Rental income for property being vacated and equity. Another change that has occured in recent years is that buyers who currently have a home theya re vacating and renting MUST have a certain amount of equity. The numbers are usualy 25% for FHA loans and 30% for conventional loans. This is another point that a lot of Loan Officers don't use. While the rent can be used as a compensating factor, you need to make sure your buyer qualifies without using that rental income. That means they qualify for both payments and any other debt. We also have to make sure taxes and insurance is being considered for any homes already owned by borrowers. This can kill your Debt To Income ratio so it's important.

3. Spouse's debt must be considered: FHA loans in California require we run the spouse's income regardless of whether or not they are included in the loan. Even if you're separated, it will be required. Some people really find this to be an annoying condition. Especially those who have been separated for many years. However, from a bank's point of view, we have to remember that we really do share debt here and that debt will have to be paid. We have to make sure that's being considered.

4. Overtime income must be consistent: Overtime income can't be used if it hasn't been consistent for at least two years and if your employer doesn't consider it "likely to continue." A lot of Loan Officers just average the income. That can be dangerous, especially in a recovering economy, because employers that haven't offered overtime in the last two years may be offering it this year.

As a service to some of my reagular Realtors, I do some cross approvals. They keep me busy and this post was inspired by some really bad preapprovals. They lacked a lot of information.

Hector Amendola - Alterra Home Loans

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