Believe it or not, in most types of lending, credit standards are beginning to ease a bit. Most commercial banks are no longer requiring their guarantors to have liquidity of 3x the amount of their business loans, credit scores by themselves are less and less likely to be the determination for a denial of credit (the litany of short sales and loan modifications can be thanked for that) on an overall basis, and Banks have expanded their LTV capabilities on commercial property-- especially multifamily housing.
But perhaps because of the proximity to disaster, mortgage loan standards remain as tight as they have ever been, and at some points can seem completely unnecessary. If you plan on refinancing your mortgage, given the historic rates, or have realized that if there was ever a time to buy into the housing market it's right now, then here's a few things you should be prepared for.
Have three years' worth of Tax Returns available, first and foremost. Not only that, but just be prepared to explain-- in detail-- the nature of your primary lifestyle activities of the past three years. And by past three, I actually mean past four, given that the tax deadline was last month (if you're on extension, be prepared to have your EA/CPA prepare a draft return for you; this is non-negotiable with lenders still). Also, be prepared with bank account statements, retirement account statements, and any brokerage statements you may have....heck, life insurance statements if you have them, too.
Take my experience for example: My wife had no income to report in 2008 and 2009, as she was in school obtaining her doctorate. Her 2010 return showed her employment, albeit brief (beginning in October of that year), and associated income. Just stating that she was in school should have been enough to piece together the history, but that was not enough for our lender. We also had to provide
sealed transcripts and her
diploma in order to satisfy the lender.
Not only that, but the lender required the most recent two paystubs from both of us...twice. Once at the initial application, and once again when escrow closing was delayed due to the short-sale lender's process.
Even on top of that, the lender placed phone calls to both of our employers to verify our employment....twice!
This is the kind of lender panic and fear that has led to the interpretation that its still impossible to qualify for a home loan still. And while that's not the case, persistence and overwhelming willpower are certainly keys to success in seeing the process through.
So get your ducks in a row; my advice is to get all of those documents into "The Cloud" as you start the process (we used Google Docs, now 'Drive'), and continue saving all of the lending info into the cloud as you fill it out and sign it. More than once we had an issue where the seller's Bank (the Short Sale lender) asked a second time for the same set of info we had already forwarded. Thankfully, since it was already "In The Cloud," I was able to immediately furnish the info to continue pushing our process forward.
And while I wish I could say that this was the only major headache in closing on our purchase, we also had to deal with the fact that we were buying a short sale, were buying someone's rental property that they had as an investment from out of state, a property that had tenants, and a selling agent that continually tried to get us to accept closing escrow
before the tenants moved out. Then our insurer decided to get snippy with us about occupancy, though we've settled every outstanding issue and are finally going to move into our little piece of Southern California this upcoming weekend!
While our situation is under normal circumstances "unique," today's environment is anything but normal, with distressed sales amounting to 1/3 of all home purchases. So, that's the kind of madness you may be looking at in the real estate world. Hopefully now you feel a bit more prepared.
