Since the mortgage banking crisis of 2007 and 2008, mortgage lenders have reverted back to more conservative lending policies. These qualifying rules and stipulations aren’t necessarily new, but the extent to which they are being followed and applied to new mortgage applications helps guarantee that prospective home buyers are held accountable.
The days of “no documentation” and “easy qualifying” mortgage loans may be long gone but with proper planning and careful documentation, your new mortgage application will sail through the approval process.
Down Payment and Closing Costs
One of the most important aspects of the home buying process is documenting the funds that will be used for the down payment and closing costs. If you’re selling your current residence, the process will be much simpler as the majority of the money needed will usually be coming from the closing of your current home.
For first time buyers, the process may be a little more complex. Banks will want to see a paper trail, bank statements, etc. for all money that will be used to purchase the home. At least 3 months of funds should be documented.
Follow the Money
Whether this is your first home or your fifth, mortgage lenders will want to verify all the monies to be used for closing. In addition, lenders will generally require the buyer to have two extra months of mortgage payments, documented and in reserve.
If the home buyers will be using money given to them as a gift, a letter from the donor and verification of the funds will again be required. Cash gifts can only be used if coming from a close relative or family member.
Keep Track of Your Credit Profile
When pulling a mortgage credit report, lenders will be carefully scrutinizing your credit history. The current FICO credit score is important, but that number alone won’t get your loan approved. Lenders will be looking at all your credit activity for at least six months prior to the application date.
Credit Do’s and Don’ts
Home buyers can be proactive by paying off small credit accounts well in advance of beginning a mortgage application. You definitely don’t want to extend your credit further. Don’t apply for credit line increases and avoid buying big ticket items that require monthly payments. Home buyers should also avoid credit inquiries ahead of and especially during the mortgage process.
Qualify by the Numbers
Mortgage lenders use a “debt ratio” to determine qualifying. They compare the projected mortgage payment including property taxes and insurance with the applicant’s total income. A second ratio adds additional monthly payments for consumer loans, credit cards and other financial obligations.
Less Debt Equals More House
Remember the “golden rule” of mortgage lending; the more consumer debt you eliminate, the more home you can afford to buy. Planning well in advance for your new home purchase will eliminate a lot of the stress and hassle associated with the mortgage process.
Real estate agents who are certified by AdvantageU™ – Home Sellers’ Resource are well qualified to assist homebuyers in obtaining a mortgage.