There is a lot that goes into getting a mortgage. From the outside, it would appear that all you need is a good credit score, solid employment and steady income. Upon closer inspection, however, this is just the tip of the iceberg. Between having your funds in an established account for two months to issues with title-to problems on the appraisal, there are many roadblocks that can impede the acquisition of a mortgage. If you are looking to get approved for a mortgage or to expedite the process, there are some basic things you should do now that will help you along the way.
Mortgage approval is based off of the middle credit score from the three reporting credit agencies. This point should not be lost on the application process. Your credit score can change every month – so the score you had a few months ago may not be the score you have today. Late payments will have the biggest impact, but available credit, new accounts and even credit pulls can lower your score. There are other factors for a mortgage approval, but the most important piece of the puzzle is your score.
After the credit score, income and assets will be evaluated. Even though you may think you make a good wage, verifying and calculating it can be another story. If you are a W2 employee and are factoring in overtime or part time income, it may not be permitted into the equation. This income needs to be consistent for at least twelve months. If you are dealing with part time income, some lenders will only allow it if you have been with your employer for 24 months. It is also important to note if there are any loans that are withdrawn automatically from your paystub and if there any deductions of note.
As a self-employed borrower, the lender will look at the average of the last two years adjusted gross income. You may have a great amount of revenue, but if the adjusted number is lower that is what the lender will use. You also need to show 24 months of ownership history. In some cases, you may need to show an increase in income over the last two years. If you are using rental income, this must be shown on your tax returns to get full value. Cash rental receipts may not be used or may not be given full value. If you do get full value, you will need bank statements for the full year showing these deposits, a signed lease and possibly copies of cancelled checks. The income you think you have may not be the income the lender will qualify you for.
Any down payment money must be what is called “seasoned” in your account for at least sixty days. If you have money under your mattress, you cannot simply show up at the closing thinking you can use these funds. Lenders will verify any large deposits and withdrawals. All of the down payment money for investment
loan programs must be your own, so you cannot put money in your account under 60 days and think you can use this for the down payment. This part of the approval process has become much stricter and requires plenty of time and paperwork for potential borrowers.
If you are taking money from a source outside of a savings account, you need to know what the seasoning guidelines are and whether or not any repayment will be counted as a debt. Most banks have strict guidelines on what they will allow for a debt-to-income ratio. Even a payment of a few hundred dollars a month can put you over that threshold. Borrowing money from a home equity line of credit or a retirement account are great ways to come up with a down payment, but will also add debt that has to be noted. Before you plan on taking any money out, you should consult your mortgage professional and find out what the ramifications are.
There are also restrictions on the number of properties you can finance, the amount of investors in a condominium complex, time from which you can buy or sell a property for and even the amount at which you may be selling it. Loan programs and guidelines change every month and vary greatly from lender to lender. The best way to stay on top of these changes is to stay in touch with your local lender or mortgage broker. When you meet with your loan consultant, bring as much information as you can with you and be prepared to document everything.
Lender financing is still a viable way to borrower money, but many of the underwriting practices have changed in the wake of the mortgage crisis. If you are applying for a loan in today’s market, you had better be prepared to acquire a good amount of paperwork. This can be frustrating at times, but this is the way the process currently is. Your credit score will be the backbone of your approval, but there are many other things that could derail your approval. Even if you think you know where you stand, it is best to talk to a professional and get your approval updated. The quicker you can provide everything needed for approval, the quicker you can close on your next purchase.
