Central Coast Lending allows borrowers to qualify for a mortgage with income represented by just one year of tax returns.
The loan qualification process requires documentation of income to gauge how large of a home loan the borrower can afford. In most cases, the borrower must submit two years of tax returns to determine the maximum loan qualification.
In situations where the borrower’s income spiked in the most recent year, the two-year standard might limit the loan amount that he or she can afford today.
In today’s market, that extra bit of affordability can make all of the difference.
One year… not worth the wait?
Homeowners and buyers currently have a window of opportunity to grab a low mortgage rate, but that window won’t remain open forever.
The popular 30-year fixed mortgage rate reached its lowest level in seven months to begin June (2014), according to Freddie Mac’s weekly survey of United States lenders.
For its May 29 reading, Freddie’s 30-year national average was 4.12%, down from a 3-year high of 4.58% set in August of 2013. The all-time low was set at 3.31% in November of 2012.
By comparison, the 30-year fixed sat between 6.0% and 8.0% from 2000 and 2006.
Today, mortgage rate movement is dictated largely by the Federal Reserve’s stimulus program called Quantitative Easing (QE).
The Fed put significant downward pressure on interest rates with its monthly bond purchases, helping rates drop to their record low levels. The policy setting wing of the Fed (Federal Open Market Committee) has already enacted “tapering” – or reduction – of QE bond purchases. As the Fed continues to leave the bond market, rates will continue to rise.
The median price of single-family home listings in San Luis Obispo County has jumped 30% over the past 24 months to $480,000.
Every dollar counts. Central Coast Lending broker associate Bob Moss estimated that in the past 24 months, higher mortgage rates and home prices have reduced affordability by 35%. More specifically, a buyer would need to make 35% more to afford the median home at the national average of the 30-year fixed mortgage rate.
The median price remains 18% below the 2006 peak of $587,000, but prices will continue to rise – even as buying activity slows.
With mortgage rates and home prices poised to keep rising, now is a good time to buy.
Qualify With One Year of Returns
Central Coast Lending co-owner Daniel Podesto offers a convenient shorthand for estimating buying purchasing power.
“Roughly, for every $100,000 you borrow, your mortgage payment will be $500 per month,” said Podesto.
At a 50% debt-to-income ratio – the upper limit – a buyer would need to make $12,000 per year for every $100,000 borrowed assuming no other monthly liabilities.
Consider then: a $6,000 jump in income offers another $50,000 in purchasing power.
The bottom line is if all of our number play got confusing: moving from an income of $36,000 per year to $42,000 per year allows the borrower to move up from a loan of $300,000 to $350,000. This purchasing power makes a significant difference in today’s market.
This situation applies for income that increases resulting from a promotion or raise, but more commonly we see qualification issues pertaining to self-employment, rental property, or farming. Consider these examples:
Situation 1: You are self-employed. Your business survived the recession, but your bottom line shrunk. As the economy has improved, your income has finally made significant, sustainable strides. Only problem: this growth only happened in the past 12 months.
Situation 2: Part of your income is derived from almond trees. After 30 years, your trees went dormant. You spent five years cultivating a new crop, and last year you finally started to see almond sales spring back.
Situation 3: Part of your income comes from a rental property. After a years worth of renovations, you are again able to rent your property out – and for a higher monthly rent.
In each situation above, the potential borrower is able to qualify for a loan based primarily on what they make now (and in the future), rather than two years ago.
Give us a call at 805.543.LOAN or an email at info@CentralCoastLending.com to learn more!
Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email firstname.lastname@example.org to set up a free pre qualification. We are The Mortgage Experts: ask us anything!