Proving Housing Expense When Landlord is Foreclosed Upon

Qualifications for a USDA Home Loan in North Carolina

Rental Payments / Housing Expense

We just sent a letter to a consumer applying for a USDA mortgage loan about a problem with the approval…

“I completely agree with you that it’s not your fault that the owner of the property was foreclosed against and due to the massive amount of foreclosures it took the bank almost a year to get around to doing something with the property.  It really is a catch 22. They want to see how you paid your existing housing expense and we cannot provide it due to no fault of your own.” *please see note at end of this post

I CAN TELL YOU that many people are having problems in their mortgage applications right now not because THEY missed rent or mortgage payments… but because the home they were renting was foreclosed on, and no one would take their payments!

USDA Home Loan Underwriters, especially – are looking at how you paid your current housing obligation to determine if they are going to lend you money for a new home. If you can’t PROVE you paid rent during the last 12 months you could have a problem.

Our best advise is this:

1. Make sure you are setting your rent payment aside each month in a savings account. We need to prove that you CAN manage a monthly housing expense, and if you have been saving $750 or paying that towards a rent – then it’s pretty easy to show the underwriter that you won’t have any payment shock.
2. Keep all documentation you get from the Landlord, the courts, the sheriff’s office the bank.  We need to document that you TRIED to make the payments and they were returned.

Remember also that the HIGHEST debt ratio allowed on a USDA Home Loan is 42%. We do have borrowers who are approved with higher back ratios – but this is considered an Underwriting Exception.

If we are asking that evidence of on time payments for the Housing Expense to be an exception (because the home went into foreclosure) then we can’t ALSO ask for an exception on the total back ratio.   We only get ONE exception per loan.

I’m not trying to make you a mortgage loan officer with all of this… I’m just pointing out that if you are in a situation that is beyond your control, and you are not being forced to make a rental payment… I wouldn’t “blow” that money. Talk to a loan officer NOW. It’s difficult to get a mortgage in 2011 if you don’t have a rental history – and you should have one (meaning if you have been living with family, that’s a little different).

If you need more information about Qualifying for a mortgage loan in NC, please call Steve and Eleanor Thorne, 919-649-5058 NC’s USDA Home Loan Experts.

*By the way we were able to make this customer a loan, it was just a longer process than anyone wanted, and it was frustrating… that’s why I’m suggesting you call NOW!