New mortgage rules went into effect on Jan. 10th regarding what is now a “qualified mortgage” or QM and how lenders document “ability to repay” or ATR.
I am not sure what I have been doing for my entire mortgage career if not verifying a borrower’s ability to repay their mortgage but that is another conversation.
Under these new rules greater scrutiny will be paid to all self-employed borrowers as we have discussed in past posts. There is another category of income that is neither salaried nor self-employed. It is called “un-earned” income.
Un-earned income comes from the following sources:
· Alimony/child support
· Social Security
· Capital gains
· Rental income
· Dividend and interest
(There are a few other esoteric un-earned income categories that we rarely see and are very uncommon).
Under the ATR regulations a key provision is verifying the likelihood of the continuation of all income, and un-earned income can be the most challenging to verify. We must be able to verify that the income stream will continue for three years from the closing date.
This can be extremely tricky especially for child support but certainly with all of the un-earned income areas illustrated above.
This is why all borrowers need to start with the pre-approval process early to determine that all income can be property verified and supported so that there are no concerns when the mortgage application goes into underwriting.