Automated Approvals

You hear a lot of brokers and lenders use the word, automated approvals. When a file is submitted it is ran thru an automated system. If you receive an “approval” most times you should good to go. The issue that comes up is, sometimes you will get an approval with a very high debt ratio or a lower score than most. Even though the system, which is a Fannie or Freddie system, approves it, some banks will not take them because it exceeds their individual guidelines. As a borrower you need to ask which banks the broker is dealing with and if the automated approval will be accepted by the particular bank. There are a few banks that will take any approval, regardless of FICO score and debt ratio. A good broker should be very aware of which banks take which approvals. This is very important and can make or break a lot of loans. Compensating factors help loans receive automated approvals when they exceed certain guidelines. Some of those factors can be; strong assets, longevity in their current job, longevity in their current home, and FICO, and low loan-to-values.

DC Metro are mortgage broker
Rockville Homes

Non-occupant co-borrower

With very strict and tough guidelines, one option for home buyers is the non-occupant co-borrowers. This is a great program for parents who are trying to help their kids purchase their first home. It is also great for older children who are helping their older and possibly retired parents qualify for a mortgage. The latter usually applies because the parents do not qualify anymore because their income has been reduced from their salary to their retirement income. On the first example, a lot of time when kids come out of college, they either don’t have the establish credit or the income to qualify for their purchase. In some cases they do not have either. This is where the non-occupant co-borrower can be very helpful. This is an FHA program and that brings some great benefits; 3.5% down payment, up to 6% in seller concessions, and in some cases manual underwriting. The program puts both the parent and child on the loan, and this mostly helps the child establish credit. The loan can be re-financed later to remove the parents. This program also lets you do an FHA streamline to take advantage of lower rates. A quick recap, on streamlines; there is no appraisal needed, and no income and asset verification. Banks will require a minimum score, and currently that score is 620.

What a lot of parents have been doing, is they are helping their child purchase a home while in college. The reason is, so they can rent the other rooms in the house out to friends and/or other students to help offset the mortgage payment. When the child finishes school, he can keep living there, rent it out, or possibly sell it. This happens a lot in college towns, because some of the homes can sometimes be very affordable.

The underwriting guidelines are the same as for any regular FHA loan. Income and assets will need to be verified, and the ratios are 31/43, but most banks will take an automated approval.

FHA helpful information
FHA Expert

High rates...

As everyone has seen the rates have been going up the last week, and today are around 5.625 at no points. A few weeks back, they were around 4.75. There are a lot of reasons for the increase; the rally in the stock market, the 10 year bond pushing 3.85 and the inconsistency in the government buying MBS, Mortgage Backed Securities. Some analysts expect the rest of the year to have a lot swings for mortgage rates. Clients need to be prepared and educated about this. Some originators are submitting files to be underwritten with a lock, hoping the rates get better. If they do, you need to lock and protect it. You also should ask your originator, if your file is approved, how long is that approval for, to see how long you can keep floating it. All banks will require an appraisal to underwrite a loan. If you do receive the approval, you can always look at a lock period less than 30 days to see if your rate is available. Most banks offer a 15 day lock and some even offer a 7 day lock. If you are going with an FHA loan, be aware, that banks will require an FHA case number, before they underwrite the loan. I know everyone is scared of the word, “ARM” or “Adjustable Rates”, but right now they are pricing very low. As an ex., the 5 yr. FHA ARM is in the low 4s. These ARM’s have a 1 year adjustments of 1 point, which means, that by year 7 you would be in the 6’s. One advantage with FHA is that anytime during the 5 year period you can streamline the loan into a fixed rate. I know there is a risk, that the fixed rate may not get to where you want it to be, but on streamlines, they are don’t as No Cost refis, and can be without an appraisal, documenting income and/or assets.


Maryland Loan Officer
King Farm Real Estate