As underwriting guidelines for lenders become more stringent, we need to re-examine what a good mortgage application looks like. As you begin your search for a home, there are a few items that you should be aware of that will help get your loan approved – and with the best possible rate and terms. At the same time, if you are aware of these factors, it will lessen the stress that goes along with the mortgage process.
Most lenders want to see a full month of paystubs and one or two years complete Federal Tax Returns. Assembling them ahead of time and holding on to every paystub you get is a good idea even before you find a home or submit your mortgage application. It will save you time later.
If you are self-employed, it will be even more important to keep track of the money you earn. Make copies of each check you receive before you deposit it, even if there is no tax withholding on the stub.
If you receive other income, such as child support or alimony, and you want that income also considered, a stamped copy of your property settlement agreement will be necessary.
In fact, it’s very important to discuss all your sources of income with your mortgage professional before you begin your house hunt.
Assets documentation will be examined for the 2 months prior to your applying for a loan. The lender will scrutinize your deposits. Anything over $500 will have to be explained and the source proven with documentation.
Optimizing Your Credit Score
Interest rates are credit score sensative, so even though you may have perfect credit, you may not use your credit enough, or you may have a temporary high balance (even if you pay off your cards in full each month). This, and many other factors, can decrease your score, and even though it’s over 700, you will pay a higher rate. Simply having no later payments is not always sufficient.
It’s also important to know that if you order your own credit report, the scores will differ from the report your lender “pulls”. The solution? Have your credit checked before you begin looking for a home. That way, you can adjust your spending, and balances to maximize your credit profile before actually applying for a loan.
Everyone is afraid they might be over-paying for their home. Remember, as long as you have an “appraisal contingency” in your offer, you are protected. If the appraisal comes in lower than the amount you have agreed to pay, you can either renegotiate the sales price, or come up with the difference in cash. If you renegotiate, the seller is usually (not always, but usually) open to that discussion because any other buyer will have the same problem when they get their appraisal.