Underwriting guidelines can make a difference

Tom and Betty Fisher had found a great fixer-upper for a good price. They also found that part of the home was heated by an oil burner and part by a coal burner. Could they get a mortgage loan for a property with these utilities?

When the Fishers consulted a mortgage bank lender, they learned that the underwriting guidelines provided by the investor who backs their loan would probably make that determination (see How do You Buy a Home, Step 5). The lender would need to consult the guidelines before he could give them an answer.

However, several steps would need to be taken. First, the lender would have the property appraised by a certified appraiser. The appraisal is used by the mortgage bank to determine whether the value of the home is at least equal to the price the Fishers are are paying. The appraisal protects both the lender and buyer to ensure that the price, and therefore the loan, is not more than the house is worth.

In addition to determining the value of a home, the appraisal will document whether the home meets codes and zoning restrictions for the area, including whether the utilities are adequate. If an oil burner/coal burner combination does not meet code or is not adequate, the Fishers may have a problem getting a loan from a mortgage bank.

However, if they do have problems with a mortgage bank, they may consider talking with someone at the bank where they have deposit accounts to find out whether it may have any programs that might meet their needs. It is possible that the bank underwrites its own loans, and guidelines may not be as strict.

The Fishers learned that different underwriting guidelines can mean one lender may deny a loan that another may grant. Underwriting guidelines vary, so for this reason as well as many others, it is a good idea to check with several lenders.