Thursday I began this series "Questions That Must Be Asked ............ Declarations Section VII Of Loan The Application" which is a follow up to a blog I did on Tuesday about the need for Buyers to be Pre-Approved for a loan "Mortgage/Loan Programs with Low or No Downpayment Still Available In Connecticut ..... Pre-Appoval Letter", and the process that should be followed. In Pre-Approving a Buyer it is EXTREMELY IMPORTANT that the Loan Officer not just look at Credit and Income, or even collect documentation to verify the information that they were given, they have to complete a full Loan Application (1003). Without completing a FULL APPLICATION, mistakes are very likely to happen, because each page of the 1003 has questions if not answered can create surprises and huge problems later on.
As I stated Thursday one of the pages of the Loan Application (1003) that unfortunately does not get the full attention that it deserves, and taken for granted by many Loan Officers, is the Declarations Section VII of Page #4. Each question on the Declarations Section VII Of Loan Application only requires a YES or NO answer, and maybe that is why it does not seem to be given the same level of attention as other parts of the Loan Application.
Since Thursday I have covered the first 11 question on Declarations Section VII Of Loan Application, and today I will cover the next 2 questions, and continue to explain why these Questions Must Be Asked On The Declarations Section VII Of Loan Application and there importance. The twelfth question on Declarations Section VII Of Loan Application states:
l. Do you intend to occupy the property as your primary residence?
This question like many of the others before it seem to be simple and straight forward, and it is if answer truthfully. The problem here is that many Borrowers who do not intend to live in the property and use it as an investment property, will not answer this question truthfully. The main reason for them to not answer it truthfully is that downpayment/Loan To Value requirements, and points that are automatically assigned on investment property by Fannie Mae and Freddie Mac, are much higher and stricter than they are on Owner Occupied Properties. For example if a Borrower puts less than 20% down on a Non Owner Occupied Property they will be assessed 3.750 points, if they put more that 20% but less than 25% down 3.000 points, and 25% or more down 1.750 points. Also if a Borrower is purchasing a Non Owner Occupied Property they will most likely need to put down a minimum of 20%, because PMI Companies will not issue PMI on the property.
Therefore a Borrower looking to purchase a Non Owner Occupied Property will in many cases try to avoid having to come up with this much money by saying that they are going to live in the property. Because this has become more and more of a problem, Lenders have establish some automatic red flags, below are a couple of examples of those red flags.
- The Borrower has a single family house and states that he/she is going to rent out the single family and live in the multi-family house that they are purchasing. Not going to fly, they are not going to believe that someone would move out of a single family house, to share a house with renters, even if it is the truth.
- Borrower presently lives and works in a different State, and states that they are going to commute back and forth each day. Here in Connecticut (it might differ in other states) if the commute is more than an hour between states, Underwriting will question it, and it will most likely not fly. Even if the Borrowers claims that they will live near where they work during the week, but commute to the property on weekends to be with the family. That will also most likely not fly.
I have run into this several times especially with Borrowers who presently work and live in New York. Housing in a couple of towns in the middle of Connecticut is much cheaper than it is near New York City, or in parts of Connecticut near New York. This is very attractive to New York Investors, and the above example seem to be a reoccurring theme.
The final question on Declarations Section VII Of Loan Application is:
- m. have you had ownership interest in a property in the last three years?
This question show always be answered truthfully because if a Borrower has owned a house in the last three years it will show up on their Credit Report. Where it does get confusing is in the case of a foreclosure as I talked about in the third blog of this series "Questions That Must Be Asked ............ Declarations Section VII Of Loan Application #3". I am not going to repeat what I wrote in post #3 here, so if you want to review those problems please just follow the link.
This question is also very important for Borrowers that are applying for First Time Homeowner Programs, which require that the Borrower has not had an ownership interest in a property for three years.
I hope that this series "Questions That Must Be Asked ............ Declarations Section VII Of Loan The Application" has made all those who have taken the time to read it, more aware of issues that can come up during that loan process is the Borrower does not provide truthful and accurate information throughout the Loan Application Process.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
