Have you heard this one?

A family walks into a bar with restless 2.5 children and a confused dog after floating between relatives’ homes and motels. A moving truck with all their belongings is anchored in front of a vacant home with a white picket fence and a walk-in closet while the overanxious parents gray over repeated hurry-up-and-wait requests for additional stuff, and more stuff from a mortgage underwriter, a title very few people understand anyway. They wonder where they went wrong.

They don’t get it. After all, they are holding an official pre-approval letter. He-said, she-said games turn somewhat twisted and comical.

Except it’s not a joke. No punch line here.

Returning to the good ol’ days

“We are going back to basics,” explains Patricia Ahmad, vice president mortgage planner at Cornerstone Mortgage Company. Reminiscing about double-digit interest rates and much stricter loan guidelines from the early 1980s, Ahmad is cool and unaffected. “For those that obtained financing a few years ago or for those new in the industry, these changes may seem radical.”

Banks keep lending money and homes keeps closing.

You want a home? Plan for it, unless you intend to pay cash.

“The days of unearned home ownership are gone,” says Chris Kelso, loan officer and branch manager at Willow Bend Mortgage. “ Buyers must prove they are a viable candidate by being able to verify their income, assets and credit worthiness. Clients with the best credit are planners and do things in advance.”

The changes

With the increase of defaulting loans, lending programs tightened. A computerized approval system based solely on limited input is no longer effective. There is even talk of “Fannie Mae getting rid off Desktop Underwriter in favor of face to face meetings,” Kelso says.

Fannie Mae and Freddie Mac publish their criteria. The investors who buy the loans also layer their preferences, and then the individual mortgage company also puts in their two cents. With as many as 200 pages of guidelines for one loan, keeping up with specifics and their variables requires rain-man-like virtuosic abilities.

And these keep on changing, sometimes daily.

The fly-by-night mortgage companies and money driven loan officers that emerged as a result of the loan-for-all spirit are being weeded out by a new licensing system that raises responsibility and accountability. Underwriters and mortgage companies are also subject to evaluation, and excessive unperforming loans can result in the mortgage company being fired by the investors.

What now?

What should be left, in time, are career mortgage professionals that know their stuff and have a stable team of processors and underwriters who are in it for the long haul. They know each other and know the rules. Find them, use them, love them, and thank them. Work with those who openly inform you of the good, the bad and the ugly. They have the ability to preempt problems with higher accuracy and close the transaction in time.

For those that met the April 30 deadline and signed a purchase agreement, June is becoming highly stressful as closing prior to June 30 is a requirement to earn the Home Buyer Tax Credit. But a recent amendment to the Tax Extenders Bill could allow for a three month extension to close that loan. Delays are attributed to the high volume of loans currently on back log.

What to do?

With the help of Ahmad and Kelso, below is a list of dos and don'ts to help you successfully thrive through the underwriting process.

Do this:

• Understand what your credit score means in terms of financing programs. Credit scores available through consumer sites vary from those pulled for mortgage purposes. They are weighed differently and the variance could mean an approval or denial. Your credit score is the single most important factor that determines program availability and interest rate.
• Complete a loan application which includes pulling a credit report, two years tax returns, three months of assets and 30 days of pay stubs. There is a difference between what you earn and your reported income. Any write-offs lower your verifiable income. Insist on sending your loan to the underwriter up front.
• Disclose everything and be truthful to your loan officer because anything hidden will eventually surface. Even if you think it is insignificant, allowing the loan officer to understand your big financial picture will help them match you accurately with one of a myriad of different finance products available.
• Understand the complete financial responsibility with home ownership. This includes mortgage payments, taxes, insurance, homeowner’s association fees, assessment fees, customary home maintenance costs, utilities, and also includes back up plans if you find yourself unemployed. The best thing for everyone is “to keep the customer in the home,” per Kelso.
• Report your income. If you are self-employed, be aware that your net income after business expenses will be the income used for qualifying. The lender will use a two-year average from the income tax returns submitted to the IRS.

Don't do this:

• Do not purchase any other large items on credit, open or close credit cards. Doing so will have an effect on your credit score and your debt to income ratio.
• Do not sign any long-term commitments or leases, even if they will not go on your credit. During verification, this can come up and the liability will be counted against your debt to income ratio.
• Do not make any large unverifiable deposits. Large cash deposits need to be sourced. If you are getting money as a gift, be prepared to provide a letter of explanation and information on where that money came from.
• Do not be late in any payments prior to closing. Your credit will be evaluated again prior to closing. Any derogatory information or new debt may require the loan to be reviewed again, or worse, declined altogether.
• Do not get frustrated. Be ready to provide any additional documents that the underwriter needs to approve your loan. Things can come up, and as long as you have been truthful, the loan officer has done their homework and the processor has scrubbed the file, you will sail through with ease, and end up with a home.