How Do Mortgage Underwriters View Liabilities

Liabilities In Qualifying For Home Loan

Mortgage Underwriters Will Examine Liabilities In Mortgage Qualification

Alimony Payments viewed by mortgage underwriters as liabilities

Alimony payments may be treated as a reduction to the borrower’s income rather than treating it as a monthly obligation.

Contingent Liabilities

Contingent liabilities exists when a borrower holds a joint obligation with another person or persons.

Obligations where the borrower is a co-signer must be listed as the borrower’s debt, unless the borrower can provide conclusive evidence from the debt holder that there is no possibility the debt holder will pursue debt collection against him/her should the other party default.

Co-Signed Obligations

If the borrower is a co-signer, or otherwise co-obligated on a car loan, student loan, mortgage, or any other obligation, contingent liabilities applies unless the lender obtains documented proof that the primary obligor has been making payments during the previous 12 months on a regular basis and does not have a history of delinquent payments on the loan.  This can be accomplished by providing cancelled checks for the previous 12 months from the main borrower’s bank account where the co-signer has no access or authority over it.

Mortgage Debt Obligations

If a borrower is obligated on an outstanding mortgage secured by a property which has been sold by assumption, Contract for Deed or traded within the last twelve months without a release of liability, or a property was transferred because of divorce, contingent liability must be considered a recurring liability unless the following circumstances apply:

1.  Payment history reflects 0 x 30 for the last 12 months (see note below), or

2.  An appraisal or closing statement from the sale of the property supports a value that results in a 75% LTV ratio (the outstanding balance on the mortgage loan, minus any UFMIP, cannot exceed 75% of the appraised value or sales price).

A copy of the divorce decree ordering the former/separated spouse to make payments or the assumption agreement and the deed showing transfer of title out of the borrower’s name is required.

Intallment Debt Obligations

Installment debt with less than 10 payments remaining may be excluded from DTI ratios. However, at the underwriter’s discretion, installment debt less than 10 months may be included if the payment amount will affect the borrower’s ability to pay the mortgage during the months immediately after loan closing, especially if the borrower will have limited reserves after closing.

Installment debt may not be paid down to less than 10 months to qualify.

Lease Payments

Automobile lease payments must always be included in qualifying ratios regardless of the number of months remaining on the lease contract.

Revolving Debt As Liabilities

Revolving debt must always be included in qualifying ratios. It is not acceptable to pay down or pay off a revolving debt in order to qualify.

If the credit report does not show a specific minimum monthly payment, the payment must be calculated using the greater of 5% of the outstanding balance or $10. If the actual monthly payment is documented using a statement from the creditor, that amount may be used.

Gustan Cho NMLS ID # 873293
The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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