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What is a Profit and Loss Statement?
A profit and loss statement (P&L), also known as an income statement, is a financial report that shows a company’s revenues, costs, and expenses over a specific period, usually one fiscal quarter or year.
Income Statement vs Profit & Loss Statement:
Both are used interchangeably since they reflect how well the business has performed financially.
Only P&L Statement Mortgage Loans:
These loans cater to self-employed individuals who don’t have traditional documents to prove their income. Instead of tax returns, lenders base their incomes on P&L statements, which should ideally show stable earnings over time and are typically prepared by CPAs.
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Eligibility for a USDA Loan:
Unlike other mortgage loan programs, USDA loans have a maximum household income limit as part of the USDA Rural Development Eligibility Requirements. The maximum household income limit is based on the number of people.
Variations in maximum household earnings: Usually, this is between $91,900 and $136,600 for a family of four. However, it can be higher in areas with high costs. To find out the exact figure for where you live, use USDA’s income eligibility checker.
Maximum Debt-to-Income (DTI) Ratio:
- Ordinarily, this ratio should be 29% (front-end) and 41% (back-end).
- However, if there are considerable compensating factors, exceptions may be allowed.
It is advisable to confirm these details with any particular USDA lender.
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HUD, the parent of FHA, is the federal government giant that administers FHA loans. HUD has lenient guidelines on FHA loans. The minimum credit scores for FHA loans are as follows:
580 or higher: You can qualify for a 3.5% down payment according to the standard.
500 to 579: A 10% down payment is required.
However, additional lender-imposed minimum requirements may be known as “lender overlays.” Many people with low credit ratings prefer FHA loans because they have more relaxed qualification standards. Even though HUD sets the minimum FHA credit score requirements, each mortgage lender can have their lender overlays. Lender overlays have higher lending requirements than the minimum HUD agency mortgage guidelines. Therefore, if one lender denies you an FHA loan because of a low credit score due to their lender overlays, a different lender can approve you. Gustan Cho Associates has no lender overlays on FHA, VA, USDA, and Conventional loans.
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Non-QM loans maximum debt-to-income ratio cap is at 50%. Lenders of non-QM loans use alternative income to calculate debt-to-income ratio. Unlike traditional loans, non-QM (non-qualified mortgage) lenders calculate the debt-to-income ratio with flexible guidelines. Different methods can be used to do this, which include:
Bank statement loans: here, the DTI is calculated using income shown in 12-24 months of bank statements instead of tax returns or W-2 forms.
Asset-based loans: DTI may be based on liquid assets rather than monthly income.
DSCR: DSCR (debt service coverage ratio) loans are used for investment properties, and they consider rental income instead of personal income. Lenders usually have varying DTI limits depending on a person’s overall financial profile.
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On average, receiving a “Clear to Close” takes thirty to forty-five days after applying for a mortgage. Still, several factors can expedite or delay this. Below is a general outline of what should happen:
Application: It usually takes one to three days to complete the initial paperwork and collect necessary documents.
Processing: This phase involves document verification and home appraisal, which may take one to two weeks.
Underwriting: Conditional approval is typically granted within one or two weeks.
Clear To Close (CTC): The final review happens here, so expect it within a few days of submitting the last document. How fast you avail records and underwriting smoothness determine efficiency.
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Fannie Mae and Freddie Mac Automated The Systems of Underwriting (AUS).
These automated underwriting systems assess mortgage loan applications. They are called Fannie Mae’s desktop underwriter (DU) and Freddie Mac’s loan product advisor (LPA).
AUS Findings:
Approve/Eligible: This phrase indicates that the borrower meets all program requirements and that no further documents are necessary.
Refer/Eligible: A borrower qualifies under certain conditions, but higher risks may require manual underwriting.
Refer with Caution: It means that there is significant risk or non-eligibility, and it is rare for such a loan to be approved.
Significance of AUS Findings:
They help lenders determine how much documentation is required before approving loans at different levels of risk while still ensuring compliance with agency guidelines for borrowers.
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Which Credit Scores Do Mortgage Lenders Use?
A mortgage lender often uses the middle credit score for the three main credit reporting agencies: Experian, TransUnion, and Equifax. They appraise all three reports and then use the average number for approval.
Credit Score Use in Mortgage Applications:
When getting a joint mortgage, lenders consider both spouses’ credit scores, using the lower middle score of either applicant.
FICO Scores Needed to Buy a House:
FHA Loans: 580 (3.5% down) or 500 (10% down).
Conventional Loans: 620 or higher.
USDA/VA Loans: 620+ (varies by lender).
Gustan Cho Associates has a national reputation for being able to do FHA, VA, and USDA loans with credit scores down to 500 FICO. Gustan Cho Associates has no lender overlays on government and conventional loans.
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Minimum Credit Scores for USDA Loans:
Typical Minimum Score: USDA loans have no minimum credit score requirements. However, most lenders set their minimum credit score requirements as part of their lender overlays. Most lenders require a 640 credit score. 620 to 640 credit scores are generally required for most lenders to qualify for a USDA loan with approval from an automated underwriting system.
Lowest Credit Score: Some lenders may consider lower scores with manual underwriting, but it’s more challenging.
Credit Bureau Used:
USDA loans typically pull reports from all three major credit bureaus: Equifax, Experian, and TransUnion.
Credit Scoring Model:
FICO Scores (classic models like FICO Score 2, 4, or 5) are commonly used for USDA loan qualification.
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What Do Employers Seek for in Your Credit?
Employers can examine your credit report but not your credit score. They do this to determine your financial accountability, especially for roles that involve money management or access to confidential information. Here are some of the things they look at:
Levels of Debt: High debt levels could be risky.
Payment Timeliness: Consistently late payments may raise questions.
Public Records: Bankruptcies or liens may act as warning signs.
Impact on Recruitment Caused by Credit Score:
High Credit Rating: Implies trustworthiness and good financial management skills.
Low Credit Score: This could put employment at risk, particularly within finance-related positions.
Jobs That Are Likely To Check Your Credit:
- Financial roles such as accountants and financial analysts.
- Security-sensitive positions like government jobs requiring security clearance, such as law enforcement, intelligence, security, and jobs that require leadership and responsibility.
- Loan officers and employees of financial institutions.
Bad credit does not mean no hire. Employers use credit reports to measure reliability.