The Dos and Don’ts of Applying for Mortgage Financing
Getting approved for a mortgage takes more than applying for the loan. There’s a process that all borrowers must go through to determine if they’re eligible. Lenders must determine you can afford the loan beyond a reasonable doubt, which means you must prove all of your qualifying factors.
It may feel overwhelming at first but understanding the mortgage process and what you should and shouldn’t do can help you get through the process easier.
The Do’s of Applying for Mortgage Financing
Here are all the things you should do if you want to buy a home. Following these tips will help you get to the closing table without too many issues faster.
1. Do Check your Credit Before Applying for a Mortgage
You don’t need perfect credit to get a mortgage, but the higher your credit score, the better your loan terms and rates.
Get access to your free credit reports here and see if there’s anything you must fix. For example, if you missed payments on your debts, pay them now and bring them current. Also, if you have over 30% of your credit line outstanding, pay your balance down, or if your credit report shows any inaccuracies, dispute them with the credit bureau.
2. Do get Preapproved Before Looking at Homes
Don’t look at homes before you know what you can afford. A pre-approval is the first step in getting approved for a mortgage, and you should do it before you look at homes. When an underwriter preapproves you, they evaluate your financial documentation and determine that you’re credit and income worthy of the loan.
They’ll write a pre-approval letter stating how much you can afford, the loan terms, and the conditions you must clear to get the final approval. Without a pre-approval letter, most sellers won’t accept your offer.
3. Do Have Clear Documentation of your Finances
Your lender will need proof of everything you state on your mortgage application. This includes documentation of your income, assets, liabilities, and any extenuating circumstances that affect your finances.
At the least, lenders will require:
·
Paystubs for the last month
·
W-2s from the last two years
·
Tax returns from the last two years if you’re
self-employed
·
Bank statements from the last two months to
prove your down payment and closing cost funds
· Proof of employment
The more documentation you provide during the pre-approval process, the easier it is to get to the closing table faster after you find a home. Providing documentation early also gives you time to get alternative documenting support should the underwriter find any issues.
4. Do Answer Loan Officer Requests Quickly
Your loan officer is the key to communication between you and the underwriter. When your loan officer calls, respond quickly. That usually means the underwriter needs more documentation or has a question about your qualifying factors. The faster you provide the documentation, the easier it is to get to the closing table.
The Don’ts of Applying for Mortgage Financing
Try to avoid any of the following when applying for mortgage financing as doing any of these things could hinder your loan approval.
1. Don’t Look at Homes and Then Apply for a Mortgage
Most sellers won’t show their homes without a pre-approval, but on the off chance, you could see a home without one, you shouldn’t sign a sales contract without having a pre-approval first.
Getting preapproved shows, you how much you can afford. What happens if you bid a price higher than you get approved for financing?
Having that pre-approval letter ensures you can get through the first half of the underwriting process. The rest has to do with the home, which you can’t control, but getting approved for your personal finances you can control.
2. Don’t Change Jobs after getting Preapproved
Once you complete a loan application and get preapproved by a lender, you shouldn’t change jobs unless it’s unavoidable.
Lenders base your pre-approval on your current income and employment status. If you change jobs, it could delay the closing process because lenders may require you to be at the job for a few months before they’ll use the income for underwriting.
If you not only change jobs but also change industries, it could void your mortgage approval.
3. Don’t Make Unexpected Deposits in your Bank Account
Underwriters look at all deposits in your bank account, ensuring they come from a legitimate source, such as the income from your job.
It could be a red flag for underwriters if you have large unsourced deposits. Make sure you have a paper trail showing the deposit and where it came from, proving that the funds aren’t a loan. This includes if you receive gift funds from a relative. Discuss with your loan officer how to document the funds to ensure you can use them.
4. Don’t Ruin your Credit
During the mortgage process, keep your credit as stable as possible. For example, avoid using your credit cards and racking up credit card debt. Also, don’t apply for new credit, such as a car loan, personal loan, or even a new credit card.
Underwriters base your pre-approval on your current income and liabilities. So, taking on new debt before you close will affect your debt-to-income ratio. Also, lenders pull your credit again right before you close to ensure you didn’t take out any new debt.
Final Thoughts
Applying for mortgage financing doesn’t have to be overwhelming. The key is finding a loan officer you work well with who helps you understand what you need to qualify for the loan.
You must prove your income, assets, liabilities, and employment information to get a mortgage, but a lot more goes into it. Stabilizing your credit, income, and assets and proving you are a good borrower is the key to getting approved and buying the home of your dreams.
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