Sunday, November 16, 2008

Converting Existing Homes To Rentals

All of the new mortgage programs and guidelines have got everyone feeling uneasy. Underwriters are leaning conservative and over document. Consumers are just baffled at some of the new documentation requirements. Here is a question I just received from a consumer that illustrates just that.

My question has to do with the Underwriter of a Home mortgage loan. This will be our second home. The mortgage is a couple of days from closing and the underwriter is now asking for a list of items before final approval. The items requested are not items at all, they're questions such as: Must provide an acceptable motivation letter stating why we would move from a higher price house to a lower price home? and must explain what we are going to do with the first home? (these questions really seem out of line to me for the simple fact that we were already pre-approved and frankly what bearing does it have on their decision). The last statement from this item list is the one that made me feel like i am being walked on and lead by the noise: Must be reasonable and the underwriter must be satisfied that the move makes sense for these borrowers. Can these people really play god like this? Any advice/input would be great.

I have a lot of empathy for these people and I'm sure if I were in their place I would feel that this information is none of the underwriters business too.

The guidelines have tightened up and underwriters are overwhelmed with all the new documentation requirements. These people are having to deal with the Mortgagee Letter that came out in September of 2008. It's kind of scary. You can read the letter at this link:

see ya.


  1. The underwriter is correct in asking those questions. None of them are unusual.

    Assuming your loan is for a Primary Residence, which involves different standards and requirements than an Investment Property Mortgage:

    Question #1: It is unusual for people to move to a smaller or lesser valued home. The lender also wants to ensure that the new home is not an investment property.

    Question #2: You must state and/or prove what you intend with the existing property for DTI reasons. If you do not have the income to maintain two properties then you run into a Debt to Income qualification problem. Also, the lender asks this to ensure that the new property is not an investment property.

    Question #3: Basically this states that the underwriter is not going to accept an answer such as "It's none of your business", because it IS their business.

  2. Yes, you are correct. It is the lenders business to ask these questions. It is also the Loan Officers JOB to explain to the consumer why these questions are being asked.

    The borrower does not know or understand our guidelines or rules. They should feel uncomfortable about some of the hoops they are put through, .... until the loan officer explains the whys. Then they are ok with it.

    Always get a good loan officer.