News by Subject
Complete list of specialty news sections.

Mortgage Advertising
Reach mortgage executives, loan originators and other people tied to mortgage industry.

Mortgage Industry News
Subscription-based news for people who work in real estate finance.

Mortgage Newsletter
Free e-mail newsletter with the latest headlines from

Mortgage News Reprints
Put entire stories in your online or printed newsletter or publication.

Mortgage Feedget RSS code
Condensed stories for your web site or for your RSS reader.

News Archives
Archive of news entries.

Mortgage Statistics
Data and statistics for real estate finance.

Mortgage Graphs
Directory of lenders, branch operators and mortgage service providers.
home advertise email RSS about us
HOT Topics Rates Glossary LO License Search
Consumer Mortgage News
Free mortgage news for current and prospective borrowers from a leading online mortgage industry news publication.

Mortgage Qualification Requirements Not Always Clear

The Mortgage Professor: Mortgage qualification rules are not always black and white

April 16, 2015

By JACK GUTTENTAG The Mortgage Professor - Tribune News Service

Some of the more interesting questions I receive from readers are about unusual situations that may affect their ability to qualify for a mortgage. The rules are not always crystal clear, which is why lenders continue to rely on underwriters whose stock in trade is good judgment. Here are a few illustrations:

Q: I have W-2 income with the same employer for over 10 years that is sufficient to carry the mortgage amount we are requesting. My spouse is self-employed and has had business losses for the past three years. These losses are deducted from the adjusted gross income reported in our joint tax returns. We will own the house jointly. Question: Should I leave my self-employed spouse off the mortgage application?

A: I would submit the application in your name with your income, indicating that title will be held jointly. This is common and what most couples do when only one is working but both will own the house. You proceed just as you would if your spouse was not employed. If the underwriter is satisfied with the transaction, which is very likely because of your high credit score and down payment of 20 percent, that will be the end of it.

There is the possibility, however, that the underwriter will request your tax return. Before the financial crisis, this seldom happened when an applicant could document income with W-2s. Now it happens occasionally. If it happens in your case, the underwriter will see the losses, and in the worst case, will decide to deduct the losses from the income used to qualify. The more likely possibility, however, is that the underwriter will elect to ignore the business losses because you can document that the losses have been funded out of savings and not out of your income. Another possible reason for ignoring the losses would be that they have come to an end because the business has turned the corner, or it has been shut down.

Q: My house sits on a very large plot of land, the ratio of land value to structure value being about 4:1. I'm looking to raise cash through a cash-out refinance. Is this possible?

A: If the high ratio is due in part to the property being a working farm, it won't qualify with Fannie Mae, Freddie Mac or the Federal Housing Administration. If the property is strictly residential, you will still have trouble because of a general rule that land value should be no greater than 35 percent of total appraised value, and properties should not exceed 10 acres. This rule is far from rigid, however, and much depends on the extent to which the property is similar to others in its market area, and how large a loan you are seeking.

Qualification rules often hinge very much on whether or not a reliable appraisal is possible, which depends in turn on whether the property is similar to others in its market area. Waterfront properties frequently are acceptable with high ratios of land value to total value because they usually exist in clusters, which means that appraisers can usually find comparable properties that have sold recently. At the opposite extreme, appraising a 10-acre wooded property in a market area in which 1-acre lots dominate is extremely difficult because there are no transactions in properties that are comparable. A loan may still be available, but only if the acceptable loan amount is based on a value that ignores the 9 extra acres.

Q: I am planning to relocate to a new job that will pay me a lower salary than my current one but it has a high bonus potential. Counting the bonus, I will be making more overall on my new job. Will I qualify for a larger mortgage?

A: No, you will qualify for a smaller mortgage based only on your lower salary, until such time as you can demonstrate that the bonuses are a reliable source of income.

In qualifying borrowers, lenders are interested in the income that can safely be assumed will be available, not income that might or might not be available. So if you leave a job that pays less but has a large potential bonus, the income your lender will accept goes down.

If you hold the new position for some time and can demonstrate that the bonuses come in regularly, then the lender will accept them as part of your income. But the burden of proof is yours, you must convince the underwriter.

About the Writer
Jack Guttentag is professor emeritus of finance at the Wharton School of the University of Pennsylvania.

next story

back to home page

To see more of The Mortgage Professor or to subscribe to the newspaper, go to

Copyright (c) 2015, The Mortgage Professor

Distributed by Tribune News Service.

This story was distributed by TNS - Tribune News Service
Refinance News
News about refinance programs, pricing and production.
H A R P 2.0 News
News stories about the H o m e Affordable Refinance Program including expanded program guidelines.

Copyright © 2016 Subsribers Only:

AMC directory

ARM indexes

mortgage company directory

mortgage regulations

net branch directory

pricing engine directory

wholesale lender directory

More Mortgage News Resources ( full site map):

advertising news

appraisal news

bank news

biggest lenders

commercial mortgage news

corporate mortgage news

credit news

FHA news

financial regulation news

foreclosure news

GSE news

jumbo mortgage news

interest rates

loan modification news

loan originator survey

LOS Newsletter


mortgage associations

mortgage-backed securities

mortgage books

mortgage brokers

mortgage compliance

mortgage conferences

mortgage directories

mortgage education

mortgage employment

mortgage employment index

mortgage executives

mortgage fraud

mortgage fraud blog

mortgage fraud local news

Mortgage Fraud Index

Mortgage Graveyard

mortgage insurance news

mortgage lawsuits

mortgage leads

mortgage lender ranking

mortgage licenses

mortgage litigation

Mortgage Litigation Index

Mortgage Market Index

mortgage mergers

mortgage news

mortgage politics

mortgage press releases

mortgage production

mortgage public relations

mortgage rates

mortgage servicing

mortgage statistics

mortgage technology

mortgage video

mortgage Webinars

net branch

net branch directory

nonprime news

origination news

originator tools

refinance news

reverse mortgage news

secondary marketing

servicing news

subprime news

wholesale lenders