Q & A with Dottie Herman

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Q1 - I am applying for a mortgage and work a lot of overtime.  My base pay is not that much, but with the overtime, I think it will be enough.  Will the bank include my overtime pay to qualify me for a mortgage?

A - You must have a two year history of working overtime with your current job and it must be likely to continue.  The lender will use an average of the two years in addition to your regular pay.

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Q2 - Can I use rental income that I get from two tenants to qualify for a mortgage on a new home?

A - If you own rental properties, your mortgage professional generally asks for the most recent year's federal tax return to verify your rental income. We review the Schedule E of the tax return to verify your rental income after all expenses except depreciation. Since depreciation is only a paper loss, it is not counted against your rental income.

If you have not owned the rental property for a complete tax year, we ask for a copy of any leases you have executed and estimate the expenses of ownership.  Some lenders will only allow a portion of the rental income.

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Q3 - How do you remove a name from a mortgage? I would like to remove my stepfather's name off of my mortgage now that I can afford to pay on my own. 

A - The only way to do that would be to refinance the home under your own name and make sure the application for the mortgage is only under your name without any co-signers.

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Q4 - What is a CEMA and do I need to do it for a refinance. My banker doesn't seem to be able to explain it and says it takes a very long time to do, so I should just forget it. But I heard it saves closing costs.

A - A CEMA is a consolidation / modification. It will allow you to pay mortgage tax on the NEW money borrowered during a refinance. (Iie. if your old mortgage was 200k and your new mortgage is 300k, you only will be responsible to pay mortgage tax on the difference...100k.

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Q5 - I keep getting conflicting answers from people about how my credit is rated.  How do lenders rate you on credit scores when applying for a mortgage?

A - Credit Scores (FICO SCORES) affect mortgage approval and rate. The higher the scores, the more favorable the rate. In most cases a score above 720 gets a better rate than a score of 700. The same goes for a 740 credit score over a 720 credit score. The higher scores takes away a layer of risk from the bank (investor).

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If you have a real estate question for Dottie, please send it to; Reporters@WorldPropertyChannel.com