Avoid THESE Issues During the Mortgage Process
A home loan application can feel overwhelming but if you know what issues can come up and how to avoid them you’ll have a better chance of successfully obtaining the loan that you need. Throughout the mortgage process, you will have to show proof of your credit, income, and your assets and be prepared to explain them but there is more to it than that. Here are a few of the common issues that can pop up at any time during the mortgage process.
Changes in Income Need Explanation
Since you have to provide so much of your private information you need to be prepared to explain any changes or inconsistencies in your history, including with your income. If you are an hourly wage earner with fluctuating income from varied working hours, overtime and bonuses then know that you will need to obtain written verification of employment over that last two years that breaks down your income. This will come in handy in case the underwriter at the loan company determines that your income is lower than the originator said it was. Most lenders want to see at least two years of consistent income. If your income has been more ancillary then you’ll need to look at lenders that will work with you or you could lose out on the loan entirely.
Know How Your Debt Factors In
Before you get started with any paperwork it’s important that you find out your debt situation and how it will impact your ability to obtain a mortgage. Lenders will be looking at your debt-to-income ratio to determine if you even qualify; this means that your student loans, credit cards, and auto loans are under 45%, if not you’ll need to make changes in order to get the mortgage. In order to figure out your payment-to-income ratio on your own you need to take your minimum payment on your current consumer obligations and add them to your proposed total mortgage payment and divide them into your monthly gross income.
Paying off your credit cards in order to lower your payment liabilities and payment-to-income ratio is a good idea if it’s done correctly. Paying off your consumer debts to qualify for a mortgage the account must be closed; however, this can cause a problem because closing the credit card can have a negative impact on your credit score. This can lead to the underwriter having a skewed perception of your liabilities. Even though you can reopen the card after you close on the mortgage, most lenders don’t see it this way and assume you won’t reopen the cards later on. In order to combat this, you can obtain an updated credit report that shows your debt as paid off without any payments due. The only way that this will work for you is to be sure that each creditor reports to each credit bureau that you have a zero balance and zero due.
How Negative Events Impact your Credit Report
Lenders run each borrower through a comprehensive background screening on multiple fraud databases to identify any other property that you may have been tied to in the last seven years. This means that you’ll be required to provide documentation for any unaccounted-for properties that may show up in order to prove that the property is no longer yours or it was sold; otherwise, the cost of carrying that property will be factored into your payment-to income ratio. Also, keep in mind that if you’ve had a short sale in the past four years it can stop your conventional loan immediately and you’ll have to move to an alternative loan program such as FHA.
If you run into any uncertainties in your financial journey to a mortgage you should talk with your loan professional to clear up any confusion that you may have. They will be happy to help you better understand the process and what is required of you. If any issues arise and stop your mortgage you should call your loan officer to explain the situation and be ready to provide what is needed to resolve the problem. You should always choose a loan professional that has experience with the type of mortgage you’re applying for as they’ll be far more qualified to help you through to a successful mortgage and home purchase.