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: http://va-guidelines.blogspot.com/2008/10/fha-debt-to-income-rental-income.html

see ya.

FHA Debt Ratio

I received the following question from a mortgage company yesterday. I'm sure many of you may have, or will encounter the same issue someday. I hope this helps.

To Whom It May Concern,

I've got a guy that I'm trying to get approved thru FHA, but I'm having an issue with his debt ratio since the underwriter is telling me that we have to count a child support payment against his ratios even though we've documented that the child turns 18 in less than 10 months and he'll no longer have to pay that obligation at that time.

Since it's less than 10 months my argument is that it shouldn't count against him. If I were trying to do a loan for the lady receiving the child support she wouldn't be allowed to use that as income since it won't continue for 3 years. The underwriter is
saying that the government counts this as a debt regardless of the amount of time left, which doesn't seem right to me.

According to the Child Support section in the credit guidelines on your website it looks like I'm correct. Can you please give me some clarification on who is right here and if it's me if you could provide some type of documentation that I could show the underwriter I would greatly appreciate it.

Thanks for your help.

Pete, You are right to a point. Below is a link to the 4155 and an exert. Note the red...

Good Luck

http://portal.hud.gov/fha/reference/4155-1.doc page II-51

SECTION 4: LIABILITIES

2-11 TYPES OF LIABILITIES. The following are types of liabilities that must be considered in qualifying borrowers:

A. Recurring Obligations. The borrower's liabilities include all installment loans, revolving charge accounts, real estate loans, alimony, child support, and all other continuing obligations. In computing the debt-to-income ratios, the lender must include the monthly housing expense and all other additional recurring charges extending ten months or more, including payments on installment accounts, child support or separate maintenance payments, revolving accounts and alimony, etc. Debts lasting less than ten months must be counted if the amount of the debt affects the borrower's ability to make the mortgage payment during the months immediately after loan closing; this is especially true if the borrower will have limited or no cash assets after loan closing.


Always,

Connie