How To Qualify For A Mortgage is not hard…
However, it takes some work for the applicant if they are unfamiliar with mortgage lending…
Some people want to know if there is a hassle-free or easy way to get a mortgage loan. From what they have heard, it is a long process, frustrating, and time-consuming.
They say that you have to submit tons of documents, prove your credit, give answers for late payments, (if applicable), and verify funds in your banking accounts.
Why all of the fuss just to get a mortgage loan? They simply want an easy process. Is there mortgage qualifying to make the process easier, and how to qualify for a mortgage?
The answer is yes, and maybe, and also “it depends.” It depends upon your work history, your credit obligations, your credit history, assets, and your entire financial status.
There are now online resources for lenders that can make the process easier, however, there is always exceptions to the rules when necessary.
Some Sound Advice
It is important to know that it is easier if you already know what you need to do upfront. Then what you do not know, make sure you ask questions from the mortgage loan officer or representative of the bank, broker’s office, or mortgage company.
When making the largest investment of a person’s life, and making a debt with a financial institution that will last for the next 30 +- years. I would tell you it is probably some work to it.
However, we are here to give you some important qualifying tips to make the process seem less daunting.
Understanding the Mortgage Process
It is Essential *for applicants who have never experienced a mortgage transaction-know before you go is an older statement.
The mortgage process is a matter of taking one step at a time. It is a matter of knowing that you will need to be prepared to answer any and all questions regarding your employment and financial status.
This includes employment, income, credit, assets, checking accounts, savings, investments, and bonds, and also includes other properties that you may have an interest in.
The application (URLA -uniform residential loan application, or 1003), is where you will give detailed information. This first process is highly important and it is adamant that you give current, accurate, and actual information.
You should not skimp on making sure your answers are current and up-to-date. If you forget something, leave it out, or think it is not relevant, you are setting yourself up for more questions, and documentation later. This will make the experience a longer time frame for closing.
Credit Evaluation – One of the most important steps… Credit approval is the preliminary aspect
The entire loan is basically based on a credit evaluation. If your credit does not comply with the guidelines…then you will need to work on your credit before qualifying for a mortgage. Explained below.
All debts should be listed on the initial 1003 application. Income figures need to be based on base income, plus other income that is allowed. Other income used to qualify must be substantiated, have a history, and be documented for continuation.
Never doubt that with technology today, you will be surprised what will show up on credit reports.
Most lenders will obtain directly from the IRS at least the past years’ 1040 transcripts filed with the IRS. It may be two years, and normally it will be if you are self-employed and receive commission income, bonus, tips, interest income, etc.
Remember, conveniently forgetting to mention that you have an IRS repayment plan that you must pay monthly in the amount of $400…might cause you to be denied for a mortgage.
The Process of Qualifying For a Mortgage Loan Made Easier – if you check to make sure you meet the criterion…
When a mortgage applicant does the following before applying for a mortgage loan the process can be made easier-
Credit:
- Prudent mortgage applicants will check their credit to make sure there are no 30-day late payments on the credit they have, or has a valid written explanation for minor instances.
- They have not only maintained excellent credit, but they have also checked to make sure their obligations are not excessive in relation to their income.
- Discrepancies of any legal nature reported such as possible tax liens, garnishments, delinquent child support, or other financial liens
- The debt to income (DTI) ratio should be is from 36% to 43% +- at the present time.
- Any debt that is not reported on the credit report should be made known to the originator.
- *There are circumstances with automated underwriting the DTI may be higher.
- Any debt that will continue for more than 10 months must be counted in the DTI of the borrower’s income/debt analysis. This includes but is not limited to: installment loans, student loans, personal loans, or any loan that would significantly affect the borrower’s ability to remain financially stable.
- Revolving debts must be counted in ratios and if there is no payment indicated on the credit report- a 5% payment must be calculated and used by the processor/underwriter.
Employment:
- Normally a 2-year stable history of employment is a requirement.
- For students who have finished college recently and have a one-year history is normally considered acceptable.
- With a frequent change of employment within the most recent and past 2 years: the same line of work is considered, and the experience, as well as salary adjustment, if any.
- 2 years of Self-Employment **see below for additional income questions
Income:
- The applicant knows that income used for qualifying for their mortgage must be stable base income, plus other income if needed to include:
- Bonus income (that can be documented for 2 years or a minimum of one year with automated underwriting).
- Commission Income – must be stable and documented for a history of at least 12 months to 24 months.
- Tip income to qualify must be a two-year history.
- Self-Employment income is normally a two-year stable average income. **(12 months) the time frame might change through automated underwriting with prior employment in the same line of work and other loan features meeting certain criteria.
- Part-time income must be stable and averaged over at least 12 months to 24 months to be counted as stable.
- Overtime income may be used if it appears stable, and consistent, and has occurred for the past 12 months.
- Social Security income must fit the borrower’s current income status and be documented.
- Disability income is documented as long-term and stable.
- Alimony and child support *ending date must be verified and documented and must be ongoing/continue for the next 36 months and must have been received for the past 6 months.
- Any income that is not stable base income: weekly, bi-weekly, bi-monthly, or monthly income must be verified for acceptance, and stability and will continue.
Assets:
- They have saved sufficient assets for the down payment and closing and the source of those funds is from acceptable sources. Those sources may be:
- income, savings, bonuses (that can be proven with documentation), interest and dividends, 401K available amount (with proven documentation).
- All large deposits are documented with documentation to back them up from acceptable sources.
- Gift funds are acceptable, however, most lenders prefer that these funds are documented with a gift letter and then the funds presented with a cashier’s check from the donor’s account at closing. Otherwise, a gift letter, evidence of the donor’s ability to give the funds, with a copy of the check and deposit slip into the borrower’s account.
Summary
Finally, there is no conclusive way for anyone to tell you all of the tips you need in one or even 10 articles to make the process of a mortgage application without any flaws. Guidelines are extensive and detailed per the situation present by an applicant’s application.
It depends upon each person’s financial status, employment, assets, income, debts, and how this person has prepared themselves for the process.
The guidelines are not complicated unless the borrower’s situation is complicated. If the latter makes sense. There are extenuating circumstances in people’s lives and they must always be considered individuals and worked out regarding the guidelines.
A perfect mortgage loan is hard to find, however, if you have :
- perfect credit
- stable employment for the past 2 years with an income sufficient to pay the mortgage PITI and your credit obligations with a DTI of no more than 43%
- 20% down payment with closing cost saved from an acceptable source with a history
- the property you want to purchase is in excellent repair and is appraised for the contract sales price…
When you apply our recommendations, you might be on the road to a perfect lending situation.
*Please note that mortgage guidelines change frequently (sometimes daily/weekly), and we are voicing what we know is relevant at the present time.
“Get the facts upfront, knowing the documentation required is a key factor. Less documentation may be needed if your credit is excellent.”
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