How To Get A Mortgage

The rules have not changed for how to get a mortgage, but they have changed in many ways on how to qualify. Then again the answer to this question may surely include both.

Mortgage lending is complex with many rules and regulations which can put an individual in a query really fast as these many guidelines sometimes make an individual who has not had a mortgage loan want to forget it. Please hold on though as it is not as hard as one might think.

Before you apply for a Mortgage Loan it is best to understand all mortgage terms, and know the following:

1.  Check your credit to see what your scores are. Check here with Credit Karma, they will keep you updated on your score and changes, and it is free. This will not hurt your score.

A mortgage lender will pull a credit report from all three bureaus, when you go to make application.  They will use the middle score which is called the representative score.  If there are more than one borrower; they will use the lower middle score of the two.

If you have no score; you will need to gather any information about your phone bill, car insurance, rental insurance, utilities, and rent.  A credit report must be established, meaning these non-traditional accounts will become your credit history.  You will need at least a 12 month history with these accounts paid as agreed without late payments.  You loan will be based upon a manual approval most likely as you do not have sufficient trade line for the automated underwriting system which is usually used to give the preliminary decision.  Even applying for homeowners insurance will require a credit check and your premiums are based on how good your credit is.

2.  If you have credit obligations, know what your debt to income ratio (DTI) is.  This includes your housing expenses see the following:

Monthly housing expense is equal to the following, and is named PITIA and must include the following:

• the principal and interest (P&I) payment
• the property, flood, and mortgage insurance premiums (as applicable);
• the real estate taxes;
• the ground rent; (if applicable)
• special assessments (if applicable)
• owners’ association dues (for PUD and Condo units) (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit);
• monthly co-op corporation fee (less the pro-rata share of the master utility charges for servicing individual units that is attributable to the borrower’s unit);
• subordinate financing payments on mortgages secured by the subject property.

Total Debt to Income:

This meaning take all of your payments, add in your prospective housing payment (what you can afford to pay as a house payment, include taxes and insurance estimates) and divide them into your gross income.

Credit obligations that are considered in underwriting the loan, including but not limited to:

• Alimony/Child Support/Separate Maintenance Payments
• Business Debt in Borrower’s Name
• Court-Ordered Assignment of Debt
• Co-Signed Loans
• Deferred Installment Debt
• Home Equity Lines of Credit
• Installment Debt
• Lease Payments
• Loans Secured by Financial Assets
• Open 30–Day Charge Accounts
• Other Real Estate Owned—Qualifying Impact
• Revolving Charge/Lines of Credit
• Student Loans
• Unreimbursed Employee Business Expenses

The manual underwriting guideline is 36% total debt to income ratio **See mortgage payment calculator this page. With the automated underwriting system used by lenders, the maximum DTI 45% and fluctuate depending upon the loan to value the credit score, and the assets which are indicated on the applicant. 45% is only a benchmark and may be lower, depending upon your entire credit file.  The lower it is, the better it is in how to get a mortgage.

3.  Know upfront how much money you have to put into the purchase of your home loan.  This is one important issue in how to get a mortgage.  If you have no funds, then you should step back and re-evaluate why you are applying for a mortgage loan to begin with. A bit of honesty goes a long way.  Why?  Simply because you will have to purchase homeowners insurance, you will need to pay prepaid expenses at closing and the minimum down payment is 3% for products (Fannie Mae’s new guideline will allow 3% down payment for some products (for a 97% loan to value ratio) and these funds may come from flexible sources).  The more money you have saved the better off you are; even if you do not have all you need and have to receive a gift from a family member, grant or help from an employer.

Once you feel that you have the credit, assets, and employment history to obtain a mortgage loan; it is time to do the following:

1.  Gather your documentation for all applicant’s, which should include but not limited to:

• 1 month of paystubs (address anything on your paystub such as garnishments, deductions not explained, child support payments etc.).  Have documentation to back up any of these issues or other that might exist.  Child support payments require:  a divorce decree or paperwork from the court for the amount of payments, the duration and frequency.
• W-2’s to cover the past 2 years. Even if you have changed employment.
• If self-employed; you will need to provide 2 years 1040 personal tax returns including all schedules.  If the business is a corporation you may need business tax returns.
• You will need copies of bank statements for all funds being used for the transaction for the previous 60 days minimum.  Any large deposits must be explained and documented.  If you have received a gift prior to the applying for a mortgage you must provide evidence of who gave it to you, when and it must truly be a gift and not a repayment.  If you are going for an 80% loan with a 20% down payment, the entire amount may be gifted from an acceptable source.

**Please note that it is easier to document a gift if you do not to get prior to applying for your loan.  It is much easier once you make application for the loan representative/loan officer to give you explicit instructions on how this should be done.  You must have a gift letter with the donor’s name, address, phone number, where the funds are located, if they will be given prior to or at closing, and state that these funds do not have to be repaid.

• Retirement accounts listed on the application must be documented also, if they are being used for closing, there must be documentation to back up the % invested amount and how the funds may be withdrawn.  This includes 401K funds which most will allow for the purchase of a home.
• If you have worked for more than one employer within the past 2 years, you will need to provide that information.  The lender will sometimes verify all employment by sending a form to be completed directly to the human resources department or management if no human resources.
• Any debts that are not listed on the credit report must be verified.  You should remember to disclose all information that could affect the approval of your loan.
• Usually, upfront fees are your appraisal report and credit report fees.  It depends upon the lender.

2.  It is important to remember to make sure you have given accurate information, acceptable information and nothing pops up at the last minute.  Quality Control is done before closing.  This means the employer will receive a phone call to make sure you are still working which is called a verbal verification of employment.

3.  Choose a lender who has a good repetition and one who will fully explain everything you need to be explained.

4.  Ask questions.  There is never a dumb question; especially if you don’t know the answer.

5.  Know what kind of mortgage product you have in mind.  Meaning you want a Conventional, FHA, VA, USDA loan, etc. and a fixed or adjustable-rate loan.  This information provider does not recommend an ARM…but that is another article.  Tell the loan officer upfront if you need maximum financing.  This means approximately 97% loan to value with a 3% down payment unless you are getting a VA loan.

6.  Look up mortgage terms/glossary prior to going to application but still ask questions.

7.  Know that you should receive disclosures if you have a preliminary approval.

8.  Know that a preliminary approval usually means that your credit is approved but subject to all other information to be verified is acceptable.

9.  Do not take any one’s word for what you need; unless you just do not know yourself and cannot investigate it.   If you are offered something (a product) that sounds “iffy”, or that you do not understand (ask for clarification, full clarification) and tell them you will get back to them after you have thought about it.  Research it, call another lender or someone you trust.  Do not take any offer that is said to be the only thing you qualify for, unless you understand it thoroughly.

*Interest-only loans are not as highly recommended at this time in mortgage lending. However, know that interest-only loans mean that you are not paying any principal on the debt until the initial interest-only period is up and then the balance (which is the original balance since you have not paid principal) will be amortized over the “remaining” term of the loan.

10.  If you get that preliminary approval;  find that Real Estate Agent to start the process of finding a home you can afford. It is best to have a preliminary approval when you decide on your Realtor, however, there are times when a they can assist you and answer questions prior to.

Please note this is not every single thing you need to know.  Your loan officer may ask for documentation to confirm the information submitted on the application or from something that pops up.

There are always deviations from the norm, even when you think you have every I dotted, and every t, crossed.  This is to help you be prepared and get overwhelmed when you walk into an office; not knowing how any of this works.  This is an important piece of;  How To Get A Mortgage and hopefully not get blasted with information you are not familiar with.  Good luck!

Note: Don’t let the paperwork get you down!!!

If you have any further questions on “How to get a Mortgage,”  leave me a message and I will give you my best answer to meet your need. If, I do not know the answer; I will find it for you.”

We are about helping those individuals who do not understand as much about the mortgage process as they would like to, know more!  We are dedicated to Mortgage Loan Facts!!!