July 18th, 2017 6:02 AM by Jackie A. Graves, President
In an environment where lenders are highly regulated and
risk-averse, borrowers are rightfully a little nervous when they apply for a mortgage. But
with the right preparation, qualifying for a home loan can be a rewarding
experience in your journey toward homeownership.
a lot of ways, lenders have gone back to the basics, looking at fundamental
personal finance criteria to decide who qualifies for a loan," says Rick
Sharga, chief marketing officer of Ten-X, an online real estate marketplace in
At the same time, Sharga says lenders have been more risk-averse than ever
since the housing bust.
Pickel, III, Midwest division president of AmCap Mortgage in Kansas City,
Missouri, recommends finding a loan officer you can trust and sticking with
that person during your entire homebuying process.
good loan officer is like a pilot flying you and your loan from Kansas City to
Hawaii," Pickel says. "There are several ways to get there and
several things that can happen on the way. A good loan officer has seen the
turbulence and knows where the smooth air is."
7 steps toward a loan approval
back-to-basics approach by lenders means that borrowers can take steps that
increase their chances of a mortgage approval.
your credit, reducing your debt and gathering your documentation are among the
many things you can do long before a loan application to increase the
likelihood of getting a "yes" from a lender.
1. Maintain a high credit score. The
average FICO score for an approved borrower is around 720 for a conventional
loan and close to 700 for an FHA-insured loan, says Sharga. He says borrowers
should find out their FICO score before applying for a loan, make sure their
credit report is correct and take steps to improve their score if necessary. Pickel
says he recently reviewed a loan file with a high debt-to-income ratio of 49
percent but a credit score over 800, which resulted in a loan approval.
a vigilant eye on your credit profile while you wait for your loan to close,
the application process has begun, borrowers shouldn't do anything that might
negatively impact their credit rating -- no new accounts, no late or missed
payments," says Sharga.
2. Save for a bigger down payment. One way
to minimize risk for a lender is to make a higher-than-minimum down payment.
"The average down payment today is around 10 percent; historically the
standard has been 20 percent," says Sharga. "Anything above that
lowers the loan-to-value ratio, which is viewed positively."
the right loan. If you have less money for a down payment but have good
credit, you may qualify for a conventional loan with private
mortgage insurance and a down payment requirement of 3 to 5
may want to look for a lender who issues FHA loans, which are often available
to borrowers with less cash or a lower credit score and require a down payment
of 3.5 percent. Keep in mind these loans require a monthly mortgage insurance
payment in addition to principal and interest, Sharga says.
4. Manage your debt. Lenders are reluctant
to issue loans that fall outside qualified mortgage rules established by the
Consumer Finance Protection Bureau (CFPB), says Sharga. These loans have a strict
cap of a 43 percent debt-to-income
ratio, which is the percentage of your gross monthly income that
goes toward the minimum payment on all your debt, including your mortgage.
off credit card balances or at least reducing debt before applying for a home
loan is helpful.
5. Buy within your means. "Be
realistic with your monthly income," Pickel says. "Buy a house with a
monthly payment you can afford. Buying a house that needs the income from two
or three future raises will only cause stress."
matters that you can afford your payments and have remaining income after those
payments are made, he says.
6. Demonstrate stability. Lenders look for
signs of personal and financial stability, such as whether you've saved three
to six months' worth of expenses in the bank, whether you have a steady
employment record and how often you've moved over the past few years, Sharga
says. Your good credit score and a pattern of saving money are both indicators
of financial strength.
7. Respond fast to lender requests. The
CFPB's ability-to-repay rule requires lenders to verify whether a borrower has
the means to handle loan payments, says Sharga. This requires you to have all
your financial records in order, including pay stubs, bank records, tax returns
and more. Sharga says incomplete documentation is a common reason for loans
the loan officer asks for it, then bring it," says Pickel. "Sometimes
people don't want to say they can't find something or they don't want to look
for it, but it really helps to have all the information that the loan officer
requests. This will help expedite the process."
it should go without saying, honesty is an essential component of a loan approval.
one likes surprises, especially loan underwriters," says Pickel.
"Tell the truth, even if it hurts. It will help even if it means that you
don't qualify today."
By Michele Lerner - To view the original article click here