Qualifying For Mortgage and How The Loan Process Works
This article is about qualifying for mortgage and how the home loan process works. Qualifying for a mortgage loan is now easier than several years ago. Qualifying for a mortgage in 2020 is simpler and more streamlined for borrowers with less-than-perfect credit and higher debt-to-income ratios.
Agency guidelines are much laxer than it was right after the mortgage industry went through a major overhaul after the mortgage collapse of 2008 and after new regulations went into effect. With lower mortgage rates and lenders loosening their overlays, many homebuyers can qualify for a mortgage with prior bad credit.
FHA, VA, USDA, Fannie Mae, and Freddie Mac have been lowering credit standards. GSE has been trying to promote homeownership. More and more home buyers can qualify for a home loan—the mortgage loan approval process. It can now take as little as three weeks with most mortgage lenders. This is as long as borrowers can promptly provide the documents requested by mortgage underwriters.
Mortgage Lenders Loosening Overlays
Mortgage lenders are still extremely cautious and very fearful of foreclosures. Lenders want to ensure the borrower is qualified and can repay their mortgage loans. New laws that were implemented in 2017 include Qualified Mortgage laws. This includes lenders’ needs to make sure borrowers are suited for the particular mortgage loan. Lenders need to make sure borrower has the ability to repay their new mortgage with no financial strain. The new payment is in line with minimum debt-to-income ratio guidelines.
Documents Required By Mortgage Lenders
Whether mortgage borrowers are first-time home buyers, seasoned home buyers, or refinance borrowers, lenders will require the same documents from every borrower. It can seem like a major headache and a lot of red tape. But if borrowers prepare themselves, they will be going through a process to get a mortgage loan. It is not that bad. It will be bad for borrowers who are not organized with their paperwork. But even for borrowers who are not organized, things can be streamlined, and it will not be as bad as it seems.
Questions Asked On A Mortgage Application
Things that will be asked by lenders are what is the current address, how long has the borrower lived current address, and If not lived for at least two years, need to provide a two-year residential history. Do you currently own property or rent? What is the amount currently paying for rent or mortgage? Have you been timely on rent or mortgage for the past 12 months? What is the contact information for the current landlord?
Income and Employment Documentation and Verification
Income and Employment is probably the most important factor a mortgage underwriter will be concerned with besides credit scores. Cash income does not count in the mortgage industry. All income needs to be documented and verified by the IRS. There are questions that the mortgage lender will ask you about income and employment.
All lenders will do a national third-party records search. If you have any public records that does not report on your credit report, make sure you tell your loan officer so everyone does not waste their time.
What is the name of the employer and contact information? Have you been with your current employer for two years? If not, provide two-year employment history and gaps in employment history as well as gross annual income, copies of two years’ tax returns, copies of two years of W2s, and most recent paycheck stubs. State whether an hourly employee, salaried employee, 1099 wage earner, or own business.
Qualifying For Mortgage: Importance of Documented Qualified Income
Do you have other sources of income, such as the following:
- part-time income
- overtime income
- bonus income
- child support income
- alimony income
- social security income
- pension income
- royalty income
- and did you have it for the past two years
- Will the income likely to continue for the next three years?
Qualifying For Mortgage: Credit Scores and Credit History
Lenders will want to know applicants’ credit scores and credit history. Mortgage underwriters will want to see borrowers have been timely on payments the past 12 months. They will also look for prior bad credit, prior bankruptcy, prior deed-in-lieu of foreclosure, and prior short sale. Will require a letter of explanation for what caused the derogatory credit signed and dated by the mortgage applicant. Borrowers can have unpaid collection and charged-off accounts and still qualify for a mortgage loan. However, they cannot have government loans, such as student loans that are delinquent or in collections. Child support payments need to be current and not in arrears.
Qualifying For Mortgage: Debt-To-Income Ratios
The mortgage underwriter will carefully evaluate debt-to-income ratios. Maximum debt-to-income ratios for FHA loans are capped at 46.9% front end and 56.9% back end. Maximum debt-to-income ratios for conventional loans are capped at 50% to get an approve/eligible per DU FINDINGS. USDA requires 29% front-end DTI and 41% back-end debt-to-income ratios. VA does not require a minimum credit score or debt-to-income ratio caps.
Qualifying For Mortgage With Lower FHA Mortgage Insurance
On January 26, 2015, FHA lowered the annual FHA mortgage insurance premium from 1.35% to 0.85% for all FHA borrowers with 30-year fixed-rate FHA loans. HUD has recently lowered the FHA mortgage insurance premiums from 0.85% to 0.55% on 30-year fixed-rate mortgages. Lowering the FHA annual mortgage premium has made qualifying for a mortgage much easier for homebuyers with higher debt-to-income ratios. Those with high debt-to-income ratios who need to refinance a mortgage also benefit from the lower FHA MIP.
Qualifying For Mortgage: A Comprehensive Guide for Homebuyers
Buying a home to live in is one of the most meaningful investments a person can make in their lifetime. For most people, purchasing a home involves taking out a mortgage or home loan. However, the mortgage process can be overwhelming and confusing, especially for first-time homebuyers. This comprehensive guide will demystify the mortgage process and explain how to obtain a mortgage to finance your home. Purchasing a home is a significant financial commitment for many people. It is one of the most important investments they will make. As a result, it is crucial to understand the mortgage process to ensure that you are making informed decisions. Purchasing a home is a significant financial responsibility for most people,
What is a Mortgage?
A home mortgage is a type of loan to finance the purchase of a home. The lender provides funds to the borrower to buy the property, and the borrower agrees to repay the loan over a set period with interest. A mortgage can range from 15 to 30 years, depending on the borrower’s preference and the lender’s terms.
The Mortgage Process
The first step in the home mortgage process is determining how much you can afford. Your income, credit score, and other financial obligations, such as debt and monthly expenses, are considered. It is essential to be realistic about your budget and not overextend yourself. The mortgage process has several stages. We will highlight the steps below and look further into the various stages later in the article.
Complete Mortgage Application
To get qualified and pre-approved, you must have a phone interview with a loan officer. The loan officer will ask you a series of questions about the price range of the homes you are interested in, the property tax information, and homeowners insurance information. These numbers do not have to be exact. This data is necessary to calculate your debt-to-income ratios. The loan officer will then review your income and employment information, co-borrower or non-occupant co-borrowers if applicable, your creditors, your payment history, monthly debts, and derogatory credit tradelines, and public records. If the loan officer feels you qualify, the loan officer will direct you to a link to complete an online mortgage loan application. The application will require detailed information about your income, assets, and debts. You will need to submit two years of W2s, 30 days paycheck stubs, and two months of bank statements showing proof of funds for the down payment and closing costs. Self-employed borrowers must submit two years of income tax returns, both personal and business, with all schedules. The loan officer can then start the pre-approval process.
Getting Pre-Qualified and Pre-Approved
Getting pre-approved for a mortgage is essential before searching for a home. Pre-approval means that a lender has reviewed your credit, income, and assets and has determined that you are eligible for a specific loan amount. A loan officer will thoroughly review the tri-merger credit report, income docs, tax returns, paycheck stubs, bank statements, employment history, rental history, and other documents about the borrower. Will run an automated underwriting system to get an approve/eligible. The loan officer will verify funds, down payment, assets, and closing costs funds. Once everything is verified and fact-checked, a pre-approval letter will be issued.
House Hunting
The loan officer will want to interview the real estate agent to ensure everyone is on the same page. The loan officer will discuss the parameters of the new home purchase, including property tax information, homeowners association fees if applicable, property condition for meeting HUD appraisal standards, homeowners insurance, and flood insurance if applicable. Seller concession requests will be discussed so the buyer does not have to come up with the full closing costs. Once pre-approved, borrowers can start shopping for a house with the real estate agent.
Processing and Underwriting
Once you get an executed home purchase contract, your file will be assigned to a mortgage processor. The mortgage processor will work with you from the beginning until the loan closes. The processor will update your mortgage loan application and request updated paycheck stubs, updated bank statements, and other documents required to process your loan. Angie Torres, the national operations director at Gustan Cho Associates explains when the mortgage process officially starts:
The processor will then disclose the loan and you will get the Loan Estimate within three business days. Once you acknowledge the Loan Estimate, the mortgage process official begins.
The mortgage processor’s job is to get your mortgage loan application ready for the underwriter. A great experienced mortgage processor will not submit your loan package to underwriting until all documents and paperwork are legible, complete, and orderly. Any documents required need to be complete with no missing pages. Turning in unorganized, illegible, and incomplete documents is one of the biggest reasons for delays or a last-minute mortgage loan denial. Once the file is complete, the mortgage processor will submit your file to underwriting, and a mortgage underwriter will get assigned to your loan file.
Mortgage Underwriting
A mortgage underwriter will get assigned to your mortgage loan file. The underwriter will review your loan application and verify your employment, income, and credit history. The underwriter will comb through every aspect of our loan application to determine your eligibility of your mortgage loan application and determine if you meet all the agency mortgage guidelines.
Conditional Loan Approval
If the lender approves your application, they will issue a formal mortgage commitment letter. The mortgage processor will order an appraisal to ensure the home’s value sufficiently covers the loan.
Final Loan Approval and Clear To Close
Once the mortgage underwriter has cleared all the conditions from the conditional loan approval, the mortgage underwriter will issue a clear to close. A clear to-close means the lender has given its loan commitment to prepare loan docs and close the mortgage loan. The clear to close will go to the mortgage processor. The mortgage processor will coordinate the closing with the lender’s closing department and the title company.
Closing
The final step is the closing, where you will sign all the necessary paperwork, pay closing costs, and the lender will fund the loan. The mortgage processor will coordinate the closing with the lender’s closing department and the title company. The closing is where the title changes ownership, the lender will wire the funds, the buyer will get the keys, and the seller will get the sale proceeds.
Determine Your Budget
Before you start looking at homes, you need to determine your budget. The budget involves calculating your monthly expenses, including housing costs, and figuring out how much you can afford to spend on a mortgage payment each month. You should also consider your down payment and closing costs when determining your budget. Your lender can help you determine your budget.
Choosing a Mortgage
Various types of mortgages are available, each with its pros and cons. Listed below are some of the most common types of mortgages. Fannie Mae and Freddie Mac have re-implemented the 3% down payment on a home purchase for first-time home buyers on conventional loans. First-time home buyers or seasoned home buyers who have not owned a home in the past three years and do not have much money for the down payment on a home purchase can now qualify to purchase a home via a conventional loan with only a 3% down payment.
Fixed-rate mortgage
A fixed-rate mortgage has a fixed interest rate and monthly payment for the life of the loan.
Adjustable-rate mortgage (ARM)
An ARM has a variable interest rate that changes periodically based on market conditions.
FHA loan
An FHA loan is a government-backed loan with more lenient credit and down payment requirements.
VA loan
A VA loan is for veterans and active-duty military members with no down payment requirement.
Jumbo loan
A jumbo loan is a loan that exceeds the standard loan limits set by Fannie Mae and Freddie Mac.
Choose a Lender
Once you have determined you need a budget, choose a lender. You can work with a mortgage broker or a lender. A mortgage broker works with multiple lenders to help you find the best mortgage rate and terms. A direct lender only offers its mortgage products.
Get Pre-Approved
Before looking for a home, you should get pre-approved for a mortgage. Getting pre-approved involves submitting a mortgage application and documenting your income, assets, and debts. Pre-approval helps determine how much you can afford and strengthens your offer when you find a home you want to buy.
Underwriting
After you submit your mortgage application, the lender will conduct an underwriting process to evaluate your creditworthiness. The lender will look at your credit score, employment history, and debt-to-income ratio to decide whether you’re a good candidate for the loan. If everything checks out, you’ll receive a mortgage commitment letter.
Closing
The final step in the mortgage home loan process is closing your loan. Closing is where you sign all the paperwork and finalize the loan. You must bring a cashier’s check for the down payment and closing costs. The lender will also review your financial information to ensure everything has stayed the same since your pre-approval. You will usually close at a title company or an attorney’s office, where you sign all the necessary paperwork and officially take ownership of your new home. Closing costs typically include fees for the lender, appraisal, title search, and other expenses associated with the purchase.
Home Search
Once pre-approved for a home loan mortgage, you can start looking for your dream home. Working with and choosing an experienced real estate agent who understands your needs and the local market is essential. When you locate a home you’re interested in, you’ll make an offer and negotiate with the seller. If the request is accepted, you’ll move on to giving the executed offer to your Loan Officer and closing on the home.
Qualifying For Mortgage With a Low Down Payment
Obtaining a mortgage can seem daunting, but it can be a smooth process with the correct information and guidance. Start by getting pre-approved for a mortgage and work with a reputable lender who can guide you through the process and help you make informed decisions about the type of mortgage that best fits your needs. Remember, a mortgage is a long-term commitment, so take the time to understand the process and choose the right loan.
If you should decide to buy, before you begin looking for a home and during the process, we have vast experience working with buyers to get them ready to purchase their dream home. We can take you through the entire financing process for your home loan. We also can connect you to title companies/attorneys and real estate agents in your area that can help as needed.
To qualify for a mortgage with a five-star national mortgage company licensed in multiple states, please get in touch with Ronda Butts at Gustan Cho Associates at 407-460-7999 or text Ronda for a faster response. Or email Ronda at ronda@gustancho.com for more information and further assistance. Ronda is an experienced, dually licensed real estate agent and mortgage originator. She has successfully guided many homeowners through obtaining a home on both the lending and real estate side. She does not represent buyers or sellers but offers free consultation in 48 states at Gustan Cho Associates by connecting homeowners, buyers, and sellers to the needed sources. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
