"Get a cosigner - You can always refinance to get them off in 6 months” is a refrain commonly used in the real estate industry.
While these 7 words… ‘You can just refinance in six (6) months’, sound good to the buyer and potential co-signer alike, and go a long way to move the sale along- they set the foundation for family feuds, strained or broken friendships, financial hardships and even lawsuits.
These 7 words take away from the ability of your borrower and co-signer to plan an effective exit strategy from the cosigned obligation they are entering, and can potentially erase any trust you as a real estate sales professional worked so hard to build and destroy any prospect of future referral income from your buyer and co-signer.
For the math junkies out there here is an example: (For others - skip to Reason #2)
A buyer makes a $500,000 purchase at 95% financing ( 5%- down), making her initial loan amount of $475,000. If in six months she wants to refinance the cosigned loan, she would need a new loan of $498,750. The new loan amount needed is inclusive of a 5 percent closing cost of $23,750. ($475,000 *5%) + the original loan of $475,000. If the initial appraisal was equal to purchase price, - at least two closed comparable sales at $525,000 or above would be needed just to maintain the initial 95% LtV financing. If there are no sales at that higher value, our borrower would need to bring hard cold cash to closing in the amount of $26, 750 to reclose the mortgage.
Reason #2: Hard and fast underwriting Equity-buyout rule
Reason#3: Not enough Borrower Income to go it alone.
If a co-signer was added for income purposes, it is highly unlikely the main borrower’s income would have increased enough in 6 months to allow them to qualify on their own. Hourly wage earner income is always calculated based on previous 1 0r 2 year(s) plus the Year-to-Date earnings. The extra income earned over the additional six- months generally will not have enough of an impact to significantly affect the debt-to-income ratios. The single exception is for a salaried employee whose salary income has significantly increased by the 6 month mark.
Reason #4: Not enough time to improve Credit
Bottom line – set the correct expectations for your borrower and cosigners.
As sales professionals we are in the business of service to our customers. Great service includes providing the proper information to our customers so that they can make informed decisions. It is great for long term business for all involved. The potential long-term damage to the customer, the cosigner and your online reputation is certainly not worth any short term compensation. Take the time to review the specifics reasons a cosigner is needed with your loan originator. Be sure that your buyer and your co-signer have a clear understanding of what is involved and the timeframe required for the refinance out of a loan utilizing the cosigner. For more information on utilizing a cosigner visit us at: www.channelmtg.com/chatwithaloanofficer.
Here is some insight into the mortgage underwriting process. Today, we'll provide a concise overview of how lenders assess borrower qualifications. Let's dive in!
1. Document Verification:
Lenders carefully review your provided documents, such as income statements, bank statements, tax returns, and employment records, ensuring their accuracy and compliance with lending guidelines.
2. Credit Assessment:
Your credit history is evaluated, including your credit score, payment history, and outstanding debts. These factors help lenders determine your creditworthiness and level of risk.
3. Debt-to-Income Ratio (DTI) Analysis:
Lenders assess your income and compare it to your monthly debt obligations to calculate your DTI ratio. A lower DTI ratio indicates a stronger ability to handle additional mortgage payments.
4. Property Appraisal:
If you've chosen a property, its value is assessed to ensure it aligns with the loan amount requested, providing adequate collateral.
5. Compliance with Guidelines:
Lenders follow lending guidelines set by regulators and investors. These guidelines define specific criteria for loan-to-value ratio, down payment requirements, credit scores, and more.
The underwriting process ensures responsible lending practices and protects both you and the lender. While it may take some time, we're dedicated to navigating this stage efficiently and keeping you informed.
If you have any questions or concerns about underwriting, our team is here to provide guidance. We value transparency and open communication, and we're committed to supporting you throughout the process.
We're here to make the mortgage underwriting process as smooth as possible.
Let’s uncover the truth behind some common mortgage myths. In our quest to provide you with accurate information, we're here to debunk the top three misconceptions surrounding mortgages. Let's dive in and separate fact from fiction!
Myth 1: "A 20% Down Payment is Always Required."
Reality: It's time to put this myth to rest. While a 20% down payment is often recommended to avoid private mortgage insurance (PMI), it's not a mandatory requirement. Numerous loan programs exist that offer lower down payment options, such as FHA loans, VA loans, and conventional loans with as little as 3% down. We can help you explore these options and find the one that fits your financial situation.
Myth 2: "Only Perfect Credit Scores Qualify for a Mortgage."
Reality: Don't let a less-than-perfect credit score discourage you from pursuing a mortgage. While a higher credit score can improve your chances of securing favorable loan terms, lenders offer a range of loan programs tailored to borrowers with varying credit profiles. We have the expertise to help you navigate the options available and find a suitable mortgage solution based on your unique circumstances.
Myth 3: "Self-Employed Individuals Can't Get Approved for a Mortgage."
Reality: This myth couldn't be further from the truth. While being self-employed adds complexity to the mortgage process, it doesn't disqualify you from obtaining a home loan. Lenders evaluate your income using tax returns, profit-and-loss statements, and other documentation specific to your business. We have experience working with self-employed individuals and can guide you through the process to help you secure the mortgage you need.
We hope that dispelling these myths has brought clarity and confidence to your journey towards homeownership. If you have any questions or concerns, please don't hesitate to reach out. Schedule a call with our dedicated team here to provide accurate information and guide you every step of the way.