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Your Lender Cares About Your Work Commute (Really!)

October 15, 2018

I came across a fascinating issue that rarely comes up in the loan application process recently, and I thought I should share it with you. As many first time home buyers quickly find out, mortgage lenders can be a bit intrusive when considering whether to approve a mortgage application. This is for several reasons including federal regulations that require them to collect certain information, and more generally, lenders trying to protect against the types of bad investments that led the the now infamous "mortgage meltdown". 

 

Lenders will demand to know things like who your employer is and how much money you make (and make you provide the pay stubs to prove it). A lender will typically require months worth of bank statements, and will question any deposits that don't correspond to your pay stubs. In short, mortgage lenders are very concerned with whether the person applying for a mortgage loan can afford to pay them back.

 

Sometimes, though, mortgage lenders can seem to take this process of double checking that the borrower can actually afford the loan they are applying for (sometimes referred to as "underwriting") way too far. For example, a client of mine was told by his loan officer that his commute to work from the home he wanted to purchase would be too long. The lender's underwriter decided that my client could not reasonably call the property his primary residence, and declined to issue a mortgage commitment. 

 

I have been practicing real estate law for ten years, and this was the first time I had heard of something like this happening. I had a long conversation with my client's loan officer, then did some research. What I came up with was interesting.  Federal regulations under Fannie Mae and Freddie Mac set forth credit criteria for lending to potential home buyers. Lenders go to great lengths to comply with Fannie Mae and Freddie Mac's rules for several reasons, which we won't go into here. Suffice it to say banks need to comply with federal law if they want to stay in the business of lending to home owners. 

 

One such regulation relates to how "reasonable" a home buyer's commute to work is. "Reasonableness" under this regulation is determined by the lender's underwriters. If an underwriter determines that a commute between your future home and work is not reasonable, then it cannot be classified as your primary residence, and you cannot qualify for a primary residence mortgage. There are other types of loans for properties that are not your primary residence (second home and investment properties), but those types of mortgages are considered riskier than a loan for a primary residence, and are consequently harder to get and tend to cost more for the borrower.

 

As you might imagine, my client was quite distraught at this turn of events. All was not lost, however, as I have repeatedly found that underwriter's objections can be rescinded with proper communication. Specifically, it turns out that Lenders will make exceptions to the "your commute is too long" problem under certain circumstances, such as: the borrower only makes the commute a few days a week (maybe they telecommute certain days of the week), or a portion of the year (seasonal worker, teachers, etc.).  In this case, my client was able to provide a letter explaining why he fell into an exception to this rule, and the next day his lender issued a mortgage commitment! 

 

The moral of the story is this: be open and honest with your mortgage lender, make sure you have documentation to back up your story, and be prepared to explain anything that might seem unusual or out of the ordinary. 

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