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PERSONAL FINANCE
Federal Housing Administration

Treat mortgage process like obstacle course

Jeff Lazerson
Special to USA TODAY

One trick to getting through the daunting mortgage application and underwriting process is to treat this experience like an obstacle course.

Disregard all the sad application stories you've heard. No two situations are the same. Whether you are buying or refinancing, impediments to your loan approval may be fewer than you fear.

Consider the mortgage application process an obstacle course.

For example, Jason Frangoulis, vice president of wholesale lending at New York-based United Mortgage, points to the belief you must have at least a 620 credit score to receive a conventional loan approval.

Frangoulis provided the example of a just funded, Freddie Mac-approved loan that had a 605 middle credit score with 20% down.

Obviously, I was incredulous. I contacted Freddie Mac spokesman Brad German.

German confirmed that a loan approval with a 605 credit score is certainly possible with Freddie's Loan Prospector automated underwriting engine. He said, "It's conceivable that other factors in a borrowers' credit file can be enough for an 'accept,' offsetting the weakness of the low credit score."

Another obstacle is Fannie Mae's ridiculous requirement that you pay credit cards down to zero and close the accounts when trying to qualify by reducing your credit card debt.

As inconvenient as it is, you can turn around the next day and open new credit card accounts.

The bigger issue is the hit to your credit scores when you close accounts, Gerri Detweiler, director of consumer education at Credit.com, points out.

"It can be 10, 20, 30 points (lower) for each account," she said.

The workaround is to have your loan officer use Freddie Mac because the agency does not require that accounts be closed when paying off credit cards to qualify.

Speaking of credit, account disputes are common. You cannot have any pending account disputes on your credit report when you attempt to get a conventional FHA or VA loan. There is no workaround.

For example, if you disputed a medical collection that your insurance company should have paid, you must remove the dispute. It's possible that your lender may not require you to pay the medical collection.

Because underwriters often foam at the mouth over suspected occupancy fraud, borrowers sometimes have trouble getting a loan for a new home while retaining an existing property as a rental.

Lenders are automatically suspicious when the place you're buying is not bigger, better, grander than the place where you're already living. They're suspicious that you're trying to get a lower down payment and lower rate by falsely claiming to be an occupant of the new home.

To get past this, write a truthful explanation to the lender of your intent to live there. Assert evidence of your intent to rent out your existing home with a listing agreement, for example. Consent to an occupancy inspection of your new home within the first year.

Lastly, engage a loan officer with some backbone. Within 10 seconds of asking, the loan officer you are interviewing should be able to describe in detail a recent situation that describes how this person fought to have an underwriting condition removed.

Mortgage Broker Jeff Lazerson is president of California-based Mortgage Grader. He has 28 years of origination experience. Contact him at: jlazerson@mortgagegrader.com

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