Smart Tips on Mortgage Financing
The process of getting a home loan is very different than getting other types of financing. Many who have bought a car, gotten approved for credit cards or rented a home in the past can be shocked by the additional work involved in a mortgage. Even those who have purchased a home in the past may find the process more detailed than pre-recession years.
Preparation is the key to a successful mortgage loan process. We will cover the basics here. Call us if you have any questions. We will either answer you or connect you with a loan officer we trust.
Pre-Approval is Critical
Mortgage pre-approval has become essential to the home buying process. As a buyer, you want to know your own buying power. As a seller or real estate agent, proof of the ability to secure a mortgage is considered the very first step to making a purchase. Almost no seller will agree to sell without a mortgage pre-approval letter.
Don’t be scammed with a “pre-qualification” letter. It is not much more than you could obtain from one of the online calculators. The pre-approval process includes pulling your credit, assessing your credit scores, and reviewing documents provided by borrower. Pay stubs, W-2’s, tax returns and bank statements are reviewed.
Important Tips to Get Approved
Requirements to get a mortgage loan are constantly changing, but a few standard rules always apply.
- Credit Score: Low credit scores will stop a mortgage application dead in its tracks. Many lenders require a minimum credit score of 680. While mortgages are financed with lower scores, they are either government loans (FHA or VA) or carry a higher interest rate on conventional financing. Factors include missed payments, inquiries from other lenders or retail stores, frequent late payments and too much debt. Each of these factors will lower your score.
- Cash on Hand: Save money for both a down payment and a reserve pool of money after the purchase. Lenders don’t like to see people use up all their cash for the down payment. They need to be confident you have the ability to maintain the home too.
- Job stability: Your mortgage is a long-term investment for the lender. They need to see your job history is stable. Once you start the home-buying process, don’t change jobs. A great job opportunity could ruin your ability to purchase.
- Debt-to-income ratios: Lenders calculate the total amount of debt, including the new mortgage and current debt such as car loans, credit cards, etc. The total debt is then calculated into a ratio of your current income. When the debt number gets higher than 36%, some loan programs may become unavailable. Most lenders cannot exceed a total debt ratio above 40%.
- Completed application form
- Government-issued photo ID
- Last three months of bank statements
- Last two years of W2 forms (self-employed need two years of complete tax returns)
- One month’s worth of pay-stubs
- If renting -12 months of cancelled checks
- Statements for all investment accounts
- Evidence of any other income or benefits
- Other items requested by loan officer