Is this the new "normal"? Incredibly onerous underwriting for a rental...

11 Replies

I was a mortgage loan officer and an escrow officer 20-odd years ago, before the landscape shifted.  I know the drill about proper documentation, etc.  But the process I"m in now seems just ridiculous.

Hubby and I are both self-employed, for ages now (30+ years for him, 13 for me). We're buying our second SFR as an investment property with a conventional loan (20% down). I have no problem with supplying all the usual for self-employed individuals: two-years' tax returns, bank statements, explanation of name changes, P&Ls, etc. What is starting to get to me is the absurdity of some of the additional requests by the underwriter:

- letter from our CPA "verifying" the existence of both our businesses, and that they are "still in business". (These are businesses for which we've provided the tax returns and P&L's, mind you. They've already verified the LLC's with the state. Our past bank statements show obvious business and payroll expenditures. What else is there to "verify"??)

- a $100 inspection to verify that the house we're buying has, indeed, been vacated by the seller's tenants.  Apparently just the seller's word on it will not suffice - it has to be an inspection.  I can understand an inspection if I were claiming that the tenant was staying and wanted to use the income, but if not, then why?!?

- letter from our investment broker showing the liquidation of funds for the down payment, AND letter from the bank verifying the receipt of the wired funds.  Apparently the brokerage account statements, plus showing up at closing with the actual funds, is no longer enough.

- letter explaining a decline in my business income from one year to the next.  I guess this isn't that odd (although it's the rare small business that doesn't experience income fluctuations year to year!), but with all the other piddly stuff... ((sigh))

- letter explaining the expenses for my business from 2012.  This would be NO different from what's on the P&L and the tax return.  Why a separate letter?!?

I could go on, but at this point, I just want this to be over.  I'm not sure if this is what it's like for everyone out there, or if this particular underwriter is being particularly hard-nosed.  I need some perspective here, guys!

Yes Lisa unfortunately they treat self-employed people like criminals these days. The government says they are protecting us! lol

When I got my house it didn't matter I was putting 20% down or that I could pay cash for the house multiple times over.

It blows my mind that a Wal-Mart worker making 8 bucks an hour can get a house easily and they have no savings usually. So if they lost their job next week the mortgage isn't getting paid next month. They are seen as safe because they fit into a vanilla box and the loans can be sold off easily.

Conversely I have years, and years, and years of reserves. I had to write to the underwriter umpteen explanation letters on things. The self-employed before claimed a lot of income that didn't really exist so we are being punished for the criminals of the past.   

Find another bank.

These are actually pretty standard based on what you're saying.  

You always have to validate employment from a 3rd party (CPA)

Evidence of liquidation is always required if the funds are held in equities or retirement accounts.

Income stability is a major factor in determining a borrowers credit worthiness.

As big as a PITA it is, this sounds typical for a conventional loan. After the big meltdown, underwriting standards changed dramatically. If you want the loan give them what they what they want. There really is no way around it. Yes, this IS the new normal (for now).

Originally posted by @Lisa Moon :

...

- letter from our investment broker showing the liquidation of funds for the down payment, AND letter from the bank verifying the receipt of the wired funds.  Apparently the brokerage account statements, plus showing up at closing with the actual funds, is no longer enough.

...

Well, they are concerned with the possibility that these funds are being loaned to you by others, thus potentially increasing your repayment obligation (sometimes called a silent second). And it's also possible that the funds are coming as a gift, but sometimes gifts have strings attached ...

I had an long term employed client that was told by his lender any checks he deposited during escrow that were as large or larger than his normal monthly paycheck had to have a written explanation.

Welcome to the world of buying investments!

We are both employed with W2's my husband with the government. While it is not quiet as bad as what you described its bad! 

While I hate it, I love the cheap 30 loans I am able to do! For me the "pain" is worth the gain!!!

Thanks, guys  -  guess I'll have to get used to it as long as we do conventional loans!  At least this isn't out of line, apparently.

Underwriting is completely over the top.  And the Underwriters don't seem to know what they even need - so they ask for everything including the kitchen sink.  Last year I went through a four month ordeal when I refi'd 10 loans with my Commercial Bank of 20yrs (800 FICO's and 35 yrs with the same employer!).  The most ridiculous requests for explanations and additional documentation that you could imagine.  And we have w-2 income sufficient to qualify with zero rental income.  I had to supply all leases and explain the month to month tenants - they weren't going to count these.  I guess the 2yrs of tax returns is insufficient: yeah, I inflate rental income!.  Liquid assets are sufficient to pay off all debt tomorrow.  I "lost it" a few times on the Underwriter.  Seriously, they don't even understand the new regs and do not know what they need.  "Where did the money come from on the account you opened 8 months ago?".  What?  You have all our current bank statements and brokerage accounts  -  I told the guy that I robbed a bank.

I wouieve list it too, Cheryl. My goodness, you sound like the ideal credit client!   Unbelievable.

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