Money devil » Liabilities

Employer-guaranteed sale

admin — Sat, 07 Mar 2009 11:52:14 +0000

As an additional incentive for a proposed transfer or relocation, some companies and employers may guarantee the sale of the employee’s current home. Often, the employer will simply guarantee to purchase the property, and resell it later.
If an employer has guaranteed to purchase the applicant’s current residence as part of a transfer or relocation, the existing mortgage loan on that residence is not treated as long-term liability. The applicant can obtain a new mortgage loan without having to bother with the sale of his or her current home.
As usual, however, there are always conditions:
1. The employer’s responsibility to purchase the property is clearly defined and documented.
2. The borrower’s financial responsibility for the property is clearly short-term.
3. It is readily apparent that the employer has the financial capacity to honor the guarantee.

Collections, delinquencies and judgments

admin — Sat, 07 Mar 2009 11:51:25 +0000

Collections and judgments are serious liabilities that must be addressed as quickly as possible, if the applicant is pursuing mortgage finanicng. However, not all collection accounts and judgments are the same.
Judgments are probably the most serious of the negative credit entries. Bankruptcies and foreclosures are the most damaging types of judgments. Judgments remain on the applicant’s credit report for ten (10) years after the discharge date. Other judgments include personal judgments and tax liens.
Delinquencies are past due bills that are at least 30 days late. Strictly speaking, delinquencies refer to past due amounts on currently open accounts. If the delinquencies are allowed to fester, they become a collection or charge-off account. In the case of cars, they can result in repossession.
Medical and utility collections are some of the most common type of collections seen on credit reports. Medical collections usually are now counted as seriously against the applicant. Most mortage lenders will require the borrower to pay off the collection and delinquency amounts prior to or duing the closing.

Interim financing

admin — Sat, 07 Mar 2009 11:50:24 +0000

Short-term financing in anticipation of a long-term loan is often called interim financing. Many construction loans are actually interim loans. Construction loans are typically short-term financing that is paid off as soon as the building is completed.
Another form of interim financing may involve obtaining a second mortgage on the applicant’s current home in order to cash out sufficient funds for the down payment on another purchase. These interim financing arrangements are normally not counted against the applicant. However, they must be paid off prior to or during the closing.

Debts on other real estate

admin — Sat, 07 Mar 2009 11:49:24 +0000

Mortgage loans on investment (non-owner-occupied) properties are treated differently from other installment loans. The payments on such mortgage loans are not directly held against the applicant. Instead, these investment property loan payments are held primarily against the property.
Ideally, the rental income from investment properties should offset the monthly payment requirements for those properties. In fact, most investment properties should provide the owner with an operating profit, and 75% of this net profit is actually credited to the applicant as additional income.
However, if the property is operating with a net loss, that shortfall is counted against the applicant as long-term debt.

Alimony, child support & separate maintenance

admin — Sat, 07 Mar 2009 11:48:31 +0000

These liabilities are considered long-term debts if they will continue for at least ten more months. Separate maintenance is a form of support payments for couples who are involved in a formal separation, but not yet divorced.
If an applicant is divorced or separated, he or she must submit to the mortgage lender a copy of the separation agreement or divorce decree, with accompanying property settlement agreement. These documents will indicate the monthly alimony, child support and separate maintenance payments that is expected from the applicant.

Contingent liabilities

admin — Sat, 07 Mar 2009 11:47:42 +0000

Contingent liabilities are any debt obligations that may demand payment at a future date. The most common type of contingent liability is the co-signed loan, in which the applicant is normally not responsible for the monthly payments. However, if the primary borrower defaults, the co-signer will be held responsible for the loan and default. Another type of contingent liability is student loans, which do not require payment until six months after the borrower ceases his or her formal studies. With student loans, monthly payments will be taken into consideration if payments must begin within the next 12 months. If an applicant has co-signed for a loan but does not make payments on that loan, mortgage lenders will exempt those debt payments from consideration against the applicant. For this exemption, the applicant must provide copies (at least 12 to 18 months’ worth) of the canceled checks that the primary borrower used to pay the monthly charges of that loan. By showing that someone else was making the payments, the applicant can avoid having the co-signed debt counted against him or her.

Pledged asset obligations

admin — Sat, 07 Mar 2009 11:46:27 +0000

Pledged asset obligations are basically installment loans, and mortgage loans are the most common. There are, however, other types of pledged asset obligations. Often called secured credit, pledged asset debts are any credit accounts that require the borrower to pledge some asset as security for the credit or loan. The mortgage lender will not consider the pledged assets against the applicant. Also, because these credit accounts are secured by other assets, most creditors do not analyze these accounts as stringently as consumer debts. However, mortgage lenders do place much weight on the applicant’s history with pledged asset loans because of their similarity with mortgage loans.

Single payment notes

admin — Sat, 07 Mar 2009 11:45:29 +0000

Single-payment loans are often interest-only programs, in which the total principal balance is due at the end of the term but interest payments are normally due each month. It is sometimes referred to as interest-only balloon loan programs.
Monthly interest payments on single-payment notes are treated as long-term liabilities, depending upon the loan amount and remaining term. In addition, mortgage lenders will analyze the borrower’s assets to confirm his or her ability to pay the note at its scheduled maturity.
If the note will be coming due within two years and the applicant has no clear ability to repay the obligation, mortgage lenders may decline financing.

Checking account credit line

admin — Sat, 07 Mar 2009 11:44:45 +0000

A line of credit extended in connection with a checking account is normally considered a longterm liability if a balance is owed. It is essentially classified as a revolving account. If the monthly payment amount is not indicated by the lending institution, five percent of the remaining balance is normally calculated and used as the monthly payment.

Education loans

admin — Sat, 07 Mar 2009 11:43:33 +0000

Student loans are installment debts, with special features. In the U.S., student loans are typically delayed payment programs. While the student is attending college or graduate studies, no payments will be due on the student loan.
When the student ceases his or her formal studies, however, loan payments will normally begin after a six-month grace period. It is assumed that the borrower will have a found a steady job within this time. However, some student loans do allow extensions of this grace period. Mortgage lenders will sometimes omit student loan payments from consideration if payments will not be beginning in the next 12 months.