mortgage payment has become a much, much bigger number. That’s called payment shock. If a lender thinks you may face payment shock after moving into their new home, that doesn’t automatically hinder the loan going through. However, the underwriter is going to take this into consideration as best they can and will carefully check your reserves, i.e., how much money you have in savings.
Income Reserves
When you are living paycheck-to-paycheck due to lifestyle choices, it is going to be hard to get approved for a loan, even if you have a high income. Underwriters look at monthly expenses, not simply yearly projected income. Lenders like to see that buyers have money in savings (which is referred to as income reserves), ideally three to six months worth of expenses. If the borrower has little to no savings, he or she is a high- risk borrower, and it is going to be more difficult to get the loan approved. It may not squelch the deal, but it can be an underwriting issue. Certainly, the underwriting team will scrutinize other parts of the loan more closely. For example, if you have low income reserves, the lender will review what type of assets you have, the size of the down payment, and the source of your funds. They may find that the lack of savings is a negligible risk, or they may find that the borrower is barely scraping by, despite making a large salary. That’s a huge red flag that could easily kill a deal.
COMMON INCOME ISSUES
A good lender is not going to merely check to see that a potential borrower is employed at the moment and leave it at that. A good lender will instead look at the entire income history of a borrower
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