September 12th, 2016 5:07 AM by Jackie A. Graves, President
If you want to finance
or refinance a mortgage, it’s hard to think of a better time than right now.
The marketplace is flooded with money and mortgage rates are near the lows we saw
in 2012, but about 30% of all loan applications are still not closing.
That’s right. Three
out of every 10 mortgage applications never make it to closing.
How can you avoid a
busted mortgage application? How do you crack the code so that your loan
application sails through the system and how do you get the best rate? Here are
five basic strategies to help you succeed:
Strategy #1: Check your credit report
You want the highest
possible credit scores — and so do lenders. Credit
is a measure of how you use your money and with high scores you may be able to
get a better rate. Credit scores are also a quick way for lenders to check your
financial standing, but unfortunately the credit system is not perfect and
mistakes can lead to lower credit scores.
Protect yourself. As
much in advance as possible, check your credit report. Look for items that are
wrong or out-of-date. Late payments, tax liens and judgments should generally
fall off the system after seven years while bankruptcies hang on for a decade.
If you find any discrepancies, contact the credit reporting agency immediately.
Strategy #2: Shop around
everywhere. There are thousands of them, and they’re online, offline, downtown
and in the suburbs. They include big banks, community banks, nonbanks, credit
unions, mortgage bankers and mortgage brokers.
The catch is that
different lenders have different rates, different products and pricing that can
change every day. Given your credit standing and other factors, you may qualify
for a better rate with one lender than another. Often it’s hard to tell a good
offer from a bad one without shopping around, so pick up the phone, check online
sites and let lenders battle for your business.
Strategy #3: Make lenders happy
Since the 2008
mortgage meltdown, lenders are a lot more cautious. New federal rules require
that they only make loans to borrowers who have the ability to repay the loan.
How do lenders prove they’re meeting the “ability to repay” standard? They’re
checking borrower income, assets, debts, credit, employment and anything else
which will protect them from claims that they did not fully document the loan.
Before speaking with
lenders, put together a folder with such documents as your last two tax
returns, pay stubs from the past 30 days, bank statements for the past three
months, plus retirement and savings account information. Keep the folder
up-to-date — this way when a lender asks for documentation, you’ll have it
ready and can speed up the application process.
Strategy #4: Don’t maximize debt
today—more than 98% according to the National Association of Realtors — are
“qualified mortgages” or QMs. The QM rules generally say that no more than 43%
of your monthly income — your debt-to-income ratio — can be devoted to
recurring debts such as student loans, credit card bills, car loans and housing
costs. In other words, the less you owe for non-housing debt, the more you can
borrow for real estate.
However, many lenders
like to see less debt. Instead of the standard guidelines, they add extra
requirements called buffers. Maybe they will only approve a borrower with a
debt-to-income ratio of not more than 42%. Why? Because they worry that if
there’s an error in the origination process, a borrower might accidentally
exceed the guidelines and get the lender in trouble.
Ask lenders about
their debt-to-income requirements. Get a preapproval letter form the lender and
make sure they look at your credit scores and tax information. While a
preapproval does not guarantee a successful loan application, it can help you
better estimate your borrowing ability and monthly costs.
Strategy #5: Beware of undisclosed debt
A 2013 study by Equifax
found that almost one-fifth of all mortgage borrowers, including those with
solid credit scores and debt-to income (DTI) ratios, apply for at least one new
tradeline during this period. Undoubtedly many borrowers don’t realize how this
new “undisclosed debt” impacts their ability to qualify for their mortgage.
Because lenders can
now get daily credit updates — and because credit spending can change credit
scores — borrowers should avoid both new debt and new credit lines from the
moment their loan application is being considered until the loan closes, a step
that can help you find mortgage success.
By Peter Miller - To view the original article