How to Avoid 3 Common Mortgage Qualifying Surprises

Avoid Qualifying Surprises
Summary – jump ahead to any section by clicking on these links:
1. Document Overtime, Bonus, Second Job & Commission Income
2. Season and Source Funds to Close
3. Previous Mortgage included in Bankruptcy
Tips for Avoiding Surprises during the Home Buying Process


After you’ve achieved a good credit score, paid off credit cards, and saved funds for a down payment and closing costs, the last thing any home buyer wants is to encounter surprises while in the middle of escrow.

Falling out of escrow doesn’t necessarily mean you’re unqualified to buy a home. It signifies that you no longer meet the eligibility requirements of the loan you initially pre-qualified for (note: being pre-qualified for a loan is not the same as being pre-approved), leading to the possibility of being unable to purchase the chosen home. To safeguard against such pitfalls, let’s explore three common qualifying surprises and how to avoid them in escrow.

1. Document Overtime, Bonus, Second Job & Commission Income

Employment and income documentation can significantly impact your qualifying limit if not addressed early in the pre-approval or mortgage process. It is important to show a two-year history of consistent “out of the ordinary” income and be able to document the probability that it will continue.

This is typically done through a Verification of Employment (VOE) sent to your employer(s) to break down where your income is paid, how long you have been paid this way, and whether or not there is a probability of continuation.

It is also likely that your mortgage lender will have to order tax transcripts (if you signed a 4506T authorization form) to cross-reference your W2 or pay stub income with what was reported to the IRS.

Once a 2-year history of “out of the ordinary” income has been established, income spikes, such as bonuses or commissions, must be averaged over the two-year period. Undocumented bonuses, overtime, commissions, or income from a second job held for under 2 years may not be able to be used when calculating your qualifying income.

2. Season and Source Funds to Close

Funds needed to close on a mortgage require a minimum 60-day documented holding period. Acceptable practices for using funds not seasoned for at least 60 days include monetary gifts from relatives accompanied by a gift letter and directly wired into escrow.

Depositing undocumented gifted funds into your account during escrow can cause serious delays. It will also burden the person giving you the gift money as they will be required to document the withdrawal of the funds and provide bank statements showing that they have had the money for at least 60 days.

3. Previous Mortgage included in Bankruptcy

When a mortgage is included in a bankruptcy, the lender will most likely stop reporting the mortgage payments to the credit bureaus and simply indicate – “Included in Bankruptcy.”

This becomes problematic if your current lender reviews the credit report and sees the mortgage included in the discharged bankruptcy but does not research what happened to that home after the bankruptcy. Proper due diligence involves investigating the post-bankruptcy status of the property, whether it was disposed of through foreclosure, short sale, or deed in lieu of foreclosure, as this pushes the “waiting period” out from the time that your name was removed from the title, not when the bankruptcy was discharged.

Tips for Avoiding Surprises during the Home Buying Process

Navigating the home buying process with minimal surprises is achievable through informed and proactive steps:

Ask Questions: There’s no such thing as a dumb question. Don’t hesitate to seek clarification on any aspect of the mortgage or home buying process. Contact your mortgage loan officer or real estate agent with any questions.

Avoid Pressure: Feeling pressured by your lender or agent might indicate a transaction-focused approach. Choose professionals who prioritize your needs over their commission.

Do Your Homework: Arm yourself with knowledge about the home buying and mortgage processes by exploring the wealth of information available online. You’re off to a great start if you’ve read this far!

You can confidently navigate the home buying and mortgage processes by proactively addressing potential qualifying surprises and arming yourself with knowledge. Remember, your home buying team is there to ensure a seamless experience as you embark on this exciting homeownership journey.


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