·Johnny Angel
medicine forum beginner
Joined: 16 May 2005
Posts: 1
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 Posted: Mon May 16, 2005 12:33 am Post subject:
Investmet / Trading Income used in Loan Applications
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On 7 May 2005 13:48:18 -0700, "Todd"
wrote:
| Quote: | Does anyone have any experience with listing trading or investment
income on an application for a car loan, mortage, etc?
I am curious how banks view such income given it is subject to
fluctuation.
tslf
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I can only speak to residential first mortgage underwriting. Because
of the typical fluctuation that you mention, capital gains income
reported on Schedule D is generally treated as non-recurring and
ignored in the qualifying process unless an extended history can be
documented (from which the likelihood of consistent future returns can
be concluded). Generally, the strictest standard for a manually
underwritten loan - one not subject to approval and documentation
requirements of one of the various automated underwriting engines
prevalent today - holds that the seasoning requirement is satisfied
with the three most recent years 1040's evidencing a stable/increasing
trend plus verification of the underlying assets. A simple 36 month
average will be used as qualifying income unless compelling
documentation justifies weighting the average more heavily toward the
present. If any of the underlying assets need to be liquidated to
consummate the transaction, the calculated average will be reduced by
an amount equal to the estimated income-generating power of the
liquidated portion of the assets. Income considered unstable or
decreasing will be considered a compensating factor only.
Automated engines take the common-sense human evaluation out of the
process and approve loans based on comparions of the borrower's
overall credit profile to statistical models, relying far more heavily
on historical credit management (as summarized in a FICO score) plus
comparison of the loan parameters to performance models, and typically
ask for far less documentation. Depending on the perceived risk,
qualifying income may be averaged from two or just one year's 1040's
plus verification of the underlying assets. Occasionally, for highly
qualified borrowers in low-risk transactions, simple verification of
the assets sufficient to generate the declared capital gains income is
sufficient.
For borrowers whose qualification relies mainly on non-wage types of
income, the last few years have seen an explosion in popularity of
low-doc and no-doc loan programs that require only stated
income/verified assets, stated income/stated assets or no
statement/verification at all of income and assets, but depending on
the overall risk profile you will pay a premium in the quoted interest
rate, although increased competition has reduced this premium fairly
dramatically.
JA, you betcha. |
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