Issues with Relocation Loans

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Sooner or later, a pretty fair proportion of the population are going to get an offer for a much better job, but the catch is that job is located in another city on the opposite end of the country. What are the major issues relating to the mortgage?

Well, first off, the relocating spouse may not have the job until they actually report for their first day at work. Many times people are told "Go there and you'll have a job," and when they get there, they don't. So no matter how much time you have in that line of work, until you actually have the job things are iffy and you can expect loan underwriters to reflect that. The job offer letter may or may not get the job done - it usually doesn't. Usually they want at least an employment contract, sometimes (particularly A paper) the first pay stub as well. It can be rough, and a waste of money to rent, but over the lifetime of a loan with a higher interest rate, it may pay off to actually wait until you've got that first pay stub.

Now just because the one spouse has a job offer doesn't mean the other spouse will get a job in their field. Sometimes they work in a field where there is no problem finding work, like health care. Sometimes they work in a field where moving means they don't have a career, and they're going to have to start all over in some other field. If you worked in a distillery and you're moving to Salt Lake City, you're probably going to need a career change. If that job is similar enough to the one you left behind, that's cool. But if you used to be a bookkeeper and now you're a retail clerk, then you do not have two years in the same line of work. Chances are your family is not going to be able to use your income to help qualify for the loan. They are not going to be able to use it at all until you have a job that has income. Since this can take a while, you really might be better advised to rent for a month or two (or even six, if that's the shortest lease you can find). Of course, if one spouse isn't working and doesn't plan to, this isn't really an issue.

Next, there are the issues with the property in the old city. Many times, especially in a market like the current one, the property has not yet sold, becoming a drag upon your ability to qualify for a new loan. If you can rent it, that's certainly one solution, but most lenders will only allow 3/4 of the monthly rent to be used to qualify you for a new loan, but will charge all of the expenses against this. Considering that around here it can be tough to get a positive cash flow for a rental property, you can imagine how tough it is when your monthly income from the property is chopped by 1/4, and how much more you will need to be making, in order to justify the loan. Furthermore, there are caveats to whether the lenders will accept any rental income. Be damned certain there is a paper trail on everything: accept no cash - checks only and keep copies of those checks - and even if the rental is month to month, have a written rental contract.

Another thing is that most folks expect to be able to use the entire amount of the new salary to qualify, and that's not the way it works. If you made $6000 per month for the past two years, one month at $9000 isn't going to move that monthly average income up very much. The computation is done on a weighted average basis - you've got 23 months at $6000 per month, or $138,000, and 1 month at $9000, which when added makes for a grand total of $147,000, or about $6125. When it was available, often newly relocated folks had to settle for sub-prime loans when they are normally A paper so that they could use bank statements or something else to qualify. Stated Income is also mostly dead for now - only certain types of lenders can offer it, and they were getting so much as a proportion of their total loans that they stopped offering it.

Showing enough of the right income - and a paper trail to document it - has never been so critical to those wanting a loan so that they can buy a home. In cases of relocation, it has become necessary that you pick a loan officer and work with them to dot all your i's and cross all your t's before you apply - lest you go through the entire process only to find on moving day that you have no loan.

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About this Entry

This page contains a single entry by Dan Melson published on September 13, 2021 7:00 AM.

My Loan was Denied - What Fees Can I Recover? was the previous entry in this blog.

The Tradeoff between Rate and Cost in Real Estate Loans is the next entry in this blog.

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