Buyer switches pay structure during loan, almost gets denied

Mortgage banker: Terry Hastings

Home value: $300,000

Loan amount: $265,000

Loan terms: 4.99 percent, 30-year fixed

Backstory: Hastings received a call from a buyer who was referred by their Realtor. They owned a home, but while initially looking, they fell in love with a home and wanted to buy it. They were very excited and didn’t want to lose this house. What could they do?

Hastings spoke with them at length, asking questions about their income and assets and ran a credit report. The husband, a loan office 15 years, had switched jobs and like his wife had a steady salary. Their home was going on the market the following week with high expectations to sell it at the same time they purchased.

Since they were not using equi- ty from their departure residence, and as a matter of caution, Hastings ran their numbers carrying both the home and current home and it still met the guidelines. So as a worst case scenario, they could buy the new home without selling their current home.

Hastings collected their paystubs, bank statements and had an appraisal ordered. The approval came less than a week later and things looked great, even though their current home had no offers.

Every bank runs a verification of employment (VOE) to verify the employment status of each borrower.

To Hastings’ surprise, the underwriter was told that one borrower while at the same job just switched to a per diem pay rather than salaried pay. The borrower explained that they would still be working at least 40 hours a week, but the switch in pay method actually increased their income.

Hastings explained that as a salaried employee, a bank looked at the income as guaranteed while a per diem employee is not obligated to work 40 hours. Even though it was their plan, a bank plans for the worst.

While the last paystub showed 40 hours of work, there was no guarantee that the borrower would continue working at that pace after the loan closed. Therefore, no income could be used.

Hastings and the underwriter went into emergency mode to find a solution. By removing the borrower and their related debt on the credit report, the debt remained too high for approval. However a car payment listed on the report was actually paid every month by another member of the family.

Hastings asked for a 12-month history of checks showing this and removed that debt from the credit report and the loan just squeezed though.

The buyers closed on their home two weeks later. It was almost a costly lesson that you should never change your pay structure during a mortgage loan.