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Little known formulas can help you qualify for a bigger mortgage
By Jeff Lazerson
What I think: Loan officers long have told borrowers the only type of income you can use to qualify for a loan are taxable wages — be it W-2 or self-employment income, checking and savings interest income, investment dividends and net rental income.
It turns out there’s a mother lode of little-known methods allowing you to use other assets that maybe – just maybe — can boost your qualifying income and enable you to get a larger purchase or refinance mortgage.
These include income formulas from the likes of Fannie Mae to portfolio lenders to even sub-prime lenders based on 100 percent of your bank account balances and 70 percent stock and mutual fund balances.
Best of all, none of these have tax consequences.
Here are some examples, all assuming you have a combined balance of $100,000 between bank and stock accounts:
Portfolio program: Take the $100,000 amortized over 144 months (12 years) at a 10-year Treasury rate of roughly 2.85 percent. You can count $820 per month of additional income. Holy Toledo!
Bank statement program: Or, let’s say you are relying on deposits for 12 months on a bank-statement-only qualifying program. Take the $100,000 and divide by 84 months (the first seven years of the adjustable-rate mortgage). You can add $1,190 of monthly income to your bank statement income. Jackpot!
Fannie Mae asset conversion: The formula is $100,000 divided by 360 months which equates to $278 a month of additional qualifying income that you never had to spend. OK, this particular Fannie formula gives you less income but will likely get you a much better rate.
So, you have to do some detective work. Usually, but not always, the more generous asset conversion formulas have less desirable loan terms.
It’s about time you receive credit for your hard earned assets!
If you have questions or comments, please contact Jeff Lazerson by clicking here. For more great insight make sure to check out Jeff Lazerson’s Mortgage Grader Radio Show on Sundays at 10 am on AM830 KLAA.
Jeff Lazerson - Mortgage Columnist since 2011