Author Topic: continued frustration with mortgage brokers  (Read 1062 times)

clarkfan1979

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continued frustration with mortgage brokers
« on: July 31, 2017, 12:45:45 PM »
I feel like I have had a string of bad luck with mortgage brokers. I'm in the process of trying to buy house #3 in my 3rd different state. If I was only buying in one state, I could stick with one person. However, that is not the case.

Mortgage brokers seem to do fine with W-2 income. My frustration is how to calculate rental income.

I thought our first conversation went well. The mortgage broker claimed that he uses the rental income profit claimed on my 2016 taxes, not including depreciation. That sounded good because it sounds similar to what everyone on MMM claims should be the correct way. For example, a previous broker told me that they use 75% of the total rent to account for vacancy and repairs but don't actually care about your personal vacancy and repairs. The previous broker also averages the last 2 years of rental income, instead of just using the last year.

My second frustration is that he said that he doesn't know how to treat income from substitute teaching for my wife. He claims that he can't use 1 or 2 paystubs to estimate income. I think he wants a guaranteed contact or a years worth of substitute teaching income from last years taxes. My wife didn't sub last year, so that's not possible. However, she is going to be doing it 2-3 days/week starting August 16th. Her first paycheck will be September 5th.



My total profit claimed on my 2016 taxes for 2 rentals was $13,785. I claimed $6,900 in depreciation, so I paid tax on $6,885. I sent him my taxes and his first email said that I can only count $4,000 of rental income. I claimed that $13,785 should be my rental income and please run the numbers again. He replied and said that $8,200 is the number and I am calculating it wrong. However, he doesn't really give any reasonable explanation as to why my method is incorrect and his method is correct. It seems like mortgage brokers just pull a magic number out of a hat when figuring out rental income. It's very frustrating.



 
« Last Edit: July 31, 2017, 01:05:53 PM by clarkfan1979 »

clarkfan1979

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Re: continued frustration with mortgage brokers
« Reply #1 on: July 31, 2017, 01:09:05 PM »
My second frustration is that he claims that he doesn't know how to estimate my wife substitute teaching income from 1 or 2 paystubs. He wants some sort of guaranteed contract from the district. However, that's not how it works. Her first paystub will be September 5th and second paystub will be September 20th. After two paystubs of substitute teaching, shouldn't they be able to count the income? The previous mortgage broker I spoke with last November just wanted to see a paystub and was cool with it.

waltworks

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Re: continued frustration with mortgage brokers
« Reply #2 on: July 31, 2017, 01:24:55 PM »
Your wife's income won't be allowed. Standard for non-contract stuff unless you have years and years of 1099 (or other contract/short term) income.

C'est la vie.

-W

clarkfan1979

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Re: continued frustration with mortgage brokers
« Reply #3 on: July 31, 2017, 08:39:42 PM »
The rule is two years of continuous part-time employment. She has been working part-time since May 2015. My wife doesn't get a 1099 for substitute teaching. It's a W-2 from the state of Hawaii.

I ended up cutting the mortgage broker today and trying to reconnect with a mortgage broker that I spoke with last November. She made much more sense. We will see what happens.

waltworks

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Re: continued frustration with mortgage brokers
« Reply #4 on: July 31, 2017, 10:32:12 PM »
Ok, but you said:

"Mortgage brokers seem to do fine with W-2 income."

"She has been working part-time since May 2015. My wife doesn't get a 1099 for substitute teaching. It's a W-2 from the state of Hawaii."

Either your mortgage broker is, indeed, a moron, or something here does not make sense. Didn't you just report the W2 income on your taxes, which is presumably usable by the mortgage guy?

BTW, where are you guys in HI? We spend a decent amount of time in Haleiwa.

-W
« Last Edit: July 31, 2017, 10:44:29 PM by waltworks »

kellyincville

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Re: continued frustration with mortgage brokers
« Reply #5 on: August 01, 2017, 04:28:31 PM »
...It seems like mortgage brokers just pull a magic number out of a hat when figuring out rental income...

This is a Fannie Mae spreadsheet I was directed to by an underwriter on another forum.  It's supposed to be the real deal of what they use:
https://tinyurl.com/y7fvfl8u

And personally I've used Aimloan with good results a few times.  The whole process is still a pain in the ass but they seem to know what they are doing. 

August26th

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Re: continued frustration with mortgage brokers
« Reply #6 on: August 02, 2017, 01:15:01 PM »
The Fannie Mae Form 1038 worksheet is the correct form to calculate rental income. The info is taken directly off of Schedule E of your tax returns.

Also, your wife's substitute teaching SHOULD be allowed, since she has at least a 2-year history of working part-time in the same line of work. While it is true that just getting a pay stub or two won't be enough to do accurate calculations, the lender should be able to do a "written verification of employment", or WVOE for short. Fannie Mae has a standard form for this too. It allows the employer to fill in historical information for her work. From the info on the WVOE, a 2 year average is taken, and that is the allowable income. Note, however, that if her income is declining (more than 20% year-over-year), then there's a chance they would not be able to count the income, OR they would use the lower year's income.

Here is where you can see the WVOE form:  https://www.fanniemae.com/content/guide_form/1005.pdf

Aegishjalmur

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Re: continued frustration with mortgage brokers
« Reply #7 on: August 02, 2017, 02:04:20 PM »
Yup, that's the correct form we use. Biggest issue I see on rental properties is borrowers not claiming taxes and insurance, or not claiming HOA dues which negatively impacts their qualifying income we can allow. The lease agreement is only really useful if property is a recent acquisition/recent conversion to rental and not on taxes. Otherwise, tax returns are preferred as that is a record of what the property actually generated.

Regarding your wife's part time income: I don't see how they'd have a problem with that given she has over a 2 year history in the same line of work with the same employer, unless her w2s and YTD gross pay reflect wide swings in income. If her paycheck reflects YTD gross I can figure a year to date average. You give me w2's and a start date I can figure a long term average of what she has earned since she started. I will look at previous w2's to see the monthly average for both years as well and compare that to YTD. If w2's and year to date reflect year over year increase, we're golden. If YTD is over 10% decline from previous, I will ask for documentation/explanation as to why(receives a year end bonus, ect). With income, the way I work is generally start with the most conservative calculation and see where that puts my Housing and Debt to Income ratios. If it's approvable, fine, move on, if not, I will look at other income(any Bonus, OT, Incentives, ect) and potentially using different calculation for base pay. The main issue is if comparing 2015 w2 average to 2016 w2 average to YTD monthly average there is a year over year decline, at that point, it's hard to justify using any of her income.

What gets confusing when trying to explain mortgage underwriting to people is depending on who the loan is being sold to(Fannie/Freddie), there are different guidelines/document requirements, and individual lenders have their own overlays depending on the companies risk tolerance(so lender A may want X doc, but lender B does not, but it wants Y doc instead). Then, individual Underwriters have varying risk tolerances that impact how they look at documents and income. The guidelines may tell the UW what they need, but it's up to them to interpret them and apply that to the documents.

Plans are useless. Planning is indispensable.

clarkfan1979

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Re: continued frustration with mortgage brokers
« Reply #8 on: August 07, 2017, 12:56:30 PM »
My wife was a personal assistant part-time in 2015-2016 and a substitute teachers in 2017. She has over two years of part-time work, but not in the same field. Maybe she needs to work one more full year as a substitute to claim the income?

I don't need her income if I can get the full amount of my rental income to count.

I know that the general rule of thumb is to use the 75% of rent for recent rentals without tax history, but to use your taxes for rentals that a tax history.

In 2016, I claimed a lot of repairs and travel, much more than normal for one of my rentals. Someone posted a form with guidelines from Freddie Mac saying that you can still use the 75% of rent as a calculation, instead of using your taxes. That would get me an extra $1800 of rental income.

My former mortgage broker specifically said that I have to use last years taxes. However, that doesn't seem to be the case. My number that I'm now getting is $15,200 and his number is $8,200. That $7,000 difference of income is the difference between me qualifying or not for a 437,000 loan on a $460,000 house.

I called quicken loans today and they were not much help. I asked the question above and they didn't know the answer. They simply said that they would have to pull my credit and forward my numbers to an underwriter. I told them that I didn't want my credit pulled until I knew I was close to qualifying. I offered to email them my taxes for general guidance on my calculations. They said that they didn't do that. However, I called about 6 months ago and a guy a quicken loans did go over my taxes with me over the phone. He did the calculations wrong, but I guess he was willing to try it. He calculated my debt to income to be over 90% because of my two rentals.

Still waiting on my realtor to re-connect me with a mortgage broker that I spoke with last November. 






waltworks

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Re: continued frustration with mortgage brokers
« Reply #9 on: August 07, 2017, 01:18:08 PM »
I have used the 75% number but only for *new* rentals I had no tax history on yet. If there is tax history for a rental, I think they will always require you to use that rather than a hypothetical number of some kind.

If you think about it from the lender's perspective, that makes perfect sense. If you are writing off a ton of depreciation and repairs and expenses, that means you'll have less money to pay this new loan going forward. I've run into the same problem because I do a lot of tax-advantaged account saving and keep my taxable income pretty low - which means I have a ton of trouble qualifying for any kind of mortgage. C'est la vie, TANSTAAFL.

-W

kellyincville

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Re: continued frustration with mortgage brokers
« Reply #10 on: August 07, 2017, 02:31:54 PM »
She has over two years of part-time work, but not in the same field.

My experience has been that they want two years of income in the same job, at minimum the same field.  But I'm self-employed so maybe one will do for a W2 job.  Either way, less than one year in current field is probably not negotiable. 


My former mortgage broker specifically said that I have to use last years taxes.

Like walt I've never had a lender accept 75%-PITIA when taxes were available.

One way to nudge DTI that you haven't mentioned is the expected income on the property.  They are including the expected rent from the appraisal, aren't they?

August26th

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Re: continued frustration with mortgage brokers
« Reply #11 on: August 07, 2017, 02:35:29 PM »
Clarkfan1979, unfortunately it is not an either/or option for calculating the rental income. In other words, you can't look at the Fannie Mae or Freddie Mac form and decide if you'll go the tax return route or the lease x .75 route. If it's on your tax returns, you have to use that formula.

If you had one-time extraordinary repairs on a rental in 2016, then we allow that to be added back in. But if you had a similar amount for repairs on your 2015 returns, then you can forget it.

For your wife's part-time employment... with this new info that she was a personal assistant and then a substitute teacher, this income would probably not be allowable. Once she has 2 years as a sub, then you can use it.

I'm not sure what state you are purchasing in, but I may be able to connect you to a lender who thinks/underwrites to the Fannie/Freddie guides without crazy overlays, AND who understands how to originate loans for investment properties. I'm new to the forum and don't want to break any rules, but it sounds like you've been working with some lenders that are either very conservative, or that do not really understand the guidelines. Your frustration is valid!

Let me know if I can be a resource to connect you with a good lender. (Full disclosure - I am a lender but simply offering to put you in touch with some good folks. I get nothing from this.)


kellyincville

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Re: continued frustration with mortgage brokers
« Reply #12 on: August 07, 2017, 03:35:01 PM »
I'm not sure what state you are purchasing in, but I may be able to connect you to a lender who thinks/underwrites to the Fannie/Freddie guides without crazy overlays, AND who understands how to originate loans for investment properties...

Personally, I would love to hear name(s), particularly if they do mortgages #5-10! 

clarkfan1979

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Re: continued frustration with mortgage brokers
« Reply #13 on: August 07, 2017, 04:55:47 PM »
Clarkfan1979, unfortunately it is not an either/or option for calculating the rental income. In other words, you can't look at the Fannie Mae or Freddie Mac form and decide if you'll go the tax return route or the lease x .75 route. If it's on your tax returns, you have to use that formula.

If you had one-time extraordinary repairs on a rental in 2016, then we allow that to be added back in. But if you had a similar amount for repairs on your 2015 returns, then you can forget it.

For your wife's part-time employment... with this new info that she was a personal assistant and then a substitute teacher, this income would probably not be allowable. Once she has 2 years as a sub, then you can use it.

I'm not sure what state you are purchasing in, but I may be able to connect you to a lender who thinks/underwrites to the Fannie/Freddie guides without crazy overlays, AND who understands how to originate loans for investment properties. I'm new to the forum and don't want to break any rules, but it sounds like you've been working with some lenders that are either very conservative, or that do not really understand the guidelines. Your frustration is valid!

Let me know if I can be a resource to connect you with a good lender. (Full disclosure - I am a lender but simply offering to put you in touch with some good folks. I get nothing from this.)

Thanks for the info. Someone posted this document of Freddie Mac guidelines in another post. It says on page 3 that you have the choice of using your numbers on your taxes or 75% of rent, depending on which is higher.

August26th

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Re: continued frustration with mortgage brokers
« Reply #14 on: August 07, 2017, 05:01:13 PM »
Yes, we do 5-10 mortgages and I can also connect with others that do. I would need to know the state you're purchasing in, so I can refer you to a lender that understands/is licensed in that state. Feel free to send me a PM.

cliff

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Re: continued frustration with mortgage brokers
« Reply #15 on: August 07, 2017, 07:45:58 PM »
...It seems like mortgage brokers just pull a magic number out of a hat when figuring out rental income...

This is a Fannie Mae spreadsheet I was directed to by an underwriter on another forum.  It's supposed to be the real deal of what they use:
https://tinyurl.com/y7fvfl8u

And personally I've used Aimloan with good results a few times.  The whole process is still a pain in the ass but they seem to know what they are doing.

Got sick to my stomach when you mentioned that company.  I used Aimloan around 2006 to purchase a beach house.  Everything was fine all along during my application process.  They said my file was looking good, my numbers and ratios looked great.  They never actually issued me an approval letter prior to the mortgage contingency date but strung me along with the thumbs up.

They had my P&S agreement until a few weeks before closing then asked me about a clause weren't familiar with called Title V that had to do with Massachusetts septic which needed to be replaced.  I agreed with the seller to have $ for the replacement of the system to be performed after the summer rental season following the closing so the yard didn't have to be all torn up.  Aimloan balked and said they wouldn't close.  I asked why they didn't say this while we were still in a contingency period when I could get my deposit back.  Besides, they knew the deadline dates since they had the agreement in their hands the whole time.  I asked who they thought I would be expecting would be responsible for the loss of my $33k deposit. 

They figured out a way to not delay the closing but they required the septic to be done in the first part of the rental season which screwed up my income.  They also made me put up $5k in escrow which I would only get back if the work was completed by a certain date, even though the work was being done by the seller and totally beyond my control.

Then a week before the closing they told me they were jacking up my interest rate because they decided at that point it was an investment property.

Then the night before closing, after I had already taken the day off for the closing, they let me know they didn't like the ratios and they wanted me to "find more income".  Who the hell can "find more income" when they had two years of returns in their possession?

Apparently me.  I ended up suggesting to them to back out depreciation from another property and the ratios worked. 

I think they also squeezed me for higher downpayment at the last minute too.

My account rep had left during the loan process and the manager I spoke with never quite picked up the ball except when things were hitting the fan.  I envisioned that they had piles of client loan file folders unattended to on their desks.

Guess how many times I have recommended Aimloan?  You probably guessed right.

On behalf of their more recent clients and future clients I am glad that perhaps they have straightened up things a bit post-crash.

I recommend people use a local lender or mortgage broker.

-C



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