Tag Archives for " DTI "

Christmas Without a Mortgage

My lender declined my client’s mortgage today, four days before Christmas. His existing loan expires on December 31, and this was his last chance to refinance before the lender could commence foreclosure proceedings.

This 70-year old gentleman has no late payments on his credit report. However, a credit card company entered a judgment against him six years ago, and conventional lenders require this to be removed before extending new credit. Unfortunately, he lacks the liquidity to eliminate the judgment, and his age has been an obstacle to finding a job to augment his social security income. Although the private lender liked his story, they would not accept a Debt-To-Income (DTI) ratio over 50%.

Many people rent the other side of their duplex – but the key issue is whether the lender will classify the rent as “boarder” income (100% of which may be used for qualification purposes) or “investment” income (only 75% of which is allowable – to factor in the potential loss of the tenant). The boarder income argument was valid because the building has only one tax parcel number and is still technically his primary residence. But the Underwriter disagreed, and the resulting lower income caused his DTI ratio to exceed the maximum threshold.

In the end, the proposed structure was declined at a lousy time of year. Fortunately, the lender agreed to approve a lower loan amount – and at a better interest rate. My client also has the ability to raise rent, which the tenant knows is below market.

 

Here’s the Point: A loan may be declined as presented, but it should be incumbent on every lender to offer at least one alternative structure which would allow the loan to work.