Mortgage Payment Shock Underwriting Guidelines
This BLOG On Mortgage Payment Shock Underwriting Guidelines Was PUBLISHED On January 29th, 2019
Mortgage Payment Shock And How It Is Viewed By Underwriters:
- When getting a mortgage, it is important to keep a comfortable payment for you and your family
- What you may think is a comfortable payment may not be the same as determined by your debt to income ratios
- Many Americans learned their lesson with higher than expected payments during the real estate crash of 2008
- As a result of the real estate crash, all major mortgage agencies now have maximum payment requirements (as determined by your debt to income ratio)
In this blog we will detail mortgage payment shock and how it can affect the mortgage process.
What Is Mortgage Payment Shock?
In short, mortgage payment shock refers to a significant increase in monthly liabilities such as a housing payment.
- The increase in payment will heighten the risk of a default
- This is why payment shock is scrutinized thoroughly by an underwriter
- They want to make sure that the payment increase will not stretch you too far where you cannot meet the minimum obligated payments
Mortgage Payment Shock On Adjustable Versus Fixed Rate Mortgages
Payment shock used to be for adjustable-rate mortgages, the shock that would occur due to the increases in rate after the adjustments.
- Since the crash, adjustable rate mortgages have been on a rapid decline
- In fact, they are rarely used in today mortgage market
- Payment shock is now looked at as in how much your overall payment increases
An overall increase in payment of 20% or more is considered payment shock.
Case Scenario Of Mortgage Payment Shock
Here is a case scenario to illustrate mortgage payment shock:
- Jeff has been renting the same home for almost two years for $1,700 a month
- He would like to buy a home with a VA loan
- He would like the total payment (principal,interest, taxes, insurance, and association dues) totals to $2,200
- This increase of $500 is well over the 20% payment shock threshold
- Jeff can buy the home as long as he has compensating factors
- A compensating factor could be cash reserves in the bank, longevity of employment, conservative use of consumer debt, and even the receipt of military disability benefits
The approval will be determined by a mortgage underwriter underwriter.
VA Mortgage Payment Shock Guidelines
There is no set VA guideline for mortgage payment shock.
- The VA will examine the residual income of the applicant
- A work around for payment shock is possible with VA loans
- If your residual income is at least 20% greater than the required residual income and you have at least one compensating factor, you can get around payment shock
- Since there is no set in stone guideline through the VA, it is underwriter discretion
- Majority of the time in underwriter will have the borrowers sign a letter of intent stating they understand the increase in payment and are willing to pay the increased payment
- We are experts in VA manual underwriting
If you have questions about the process or concerns of your current process, please contact Mike Gracz at 630-659-7644 or text us for faster response for mortgage advice. Mike is also reachable via email 7 days a week on firstname.lastname@example.org.
Qualifying For Mortgage With Direct Lender With No Overlays
Not all lenders have the same guidelines. All lenders need to follow agency guidelines. FHA, VA, USDA, Fannie Mac, Freddie Mac are agencies. However, lenders can have higher lending standards than agency guidelines which are called overlays. Over 75% of our borrowers are folks who either gotten a last minute mortgage denial or are stressing with another lenders due to their overlays. Gustan Cho Associates at Loan Cabin Inc. has zero overlays on government and conventional loans. We just go off agency guidelines and have no other higher lending requirements. Check out of 5 Star Zillow Reviews by our clients.
Payment shock as well as other obstacles can be difficult to understand. Please contact the experts at Gustan Cho Associates for mortgage advice. No two mortgage applications are identical, and we have seen all types of credit profile. We pride ourselves in top notch customer service and work with many families for 3, 6, and even 12 months or longer before they qualify to buy their dream home! We are experts in mortgage guidelines and even if you are in the process with another lender please reach out to us for a second opinion.