Mortgage lending is a tough business – especially with the new lending laws going into effect in 2015 4th quarter. Not all lenders are created equal which can make navigating a mortgage loan application a hair pulling experience.
One thing to always remember – not all lenders are created equal – and while there are specific loan guidelines (especially when it comes to VA, FHA, USDA loan programs) published by the US Government entities regarding these programs – the lenders who provide the money will and often do have their own set of guidelines which make these loans harder to get. This is additional set of guidelines established by the lenders is called Credit Overlays.
Even with all this in mind, you still have a lot control as to how you look in the eyes of a lender and qualifying for a mortgage given the basic guidelines and the credit overlays that your respective lender(s) may impose. The following is a brief list of things that you can control to make your mortgage process go more smoothly.
- First and foremost and perhaps a “dah” thing to say is to stay away from Bankruptcy and Foreclosure. Having these major credit issues can keep you from being qualified for a few years so choose wisely if you have to go down these roads.
- Mortgage payment and rent late payments – if you are renting you’ll have to prove your monthly payments – so you don’t want to be late on these either. If you think about it, late housing payments when applying for a mortgage are one of the worst things you can do – and you are in full control of making sure your payments are there on time.
- Keep your home off the market – If you are a home owner and looking to refinance don’t put your property up for sale and then try to refinance. When it comes time to appraise your home, the appraiser will look at your local MLS to see if you home has been up for sale within the last 6 months. If it has, you’re possibly sunk for getting a refinance. If you think about it – what lender wants to lend money on a home where the home owner is or has been looking to recently sell it.
- Lock your rate – when you start going through the mortgage process you have the option to lock in a mortgage interest rate or float the rate. Floating the rate means you don’t have a guarantee of the rate that your loan officer might have been talking to you about. Locking the rate means you will get that rate – provided you close your loan on time and nothing in your credit or income changes things – (remember above we discussed credit overlays?)
- Credit report issues – you’ll want to make sure you check your credit report long in advance of actually applying for a mortgage – you’ll want to make sure there aren’t mistakes. You can also get charge off accounts and improperly filed collections removed if you are diligent and can prove things. The process of fixing a credit report can take some time – so make sure you check your report well in advance. Also, these problems can impact your credit scores negatively.
- Get Prequalified or Pre Approved first. This is a very important step in getting a mortgage if you are out to purchase a home. The worst thing you can do to yourself and your family is to get your hopes up on a house only to have it be something you either can afford, or qualify for because of your credit.
- Job History and stability – if you think about it, any lender wants to make sure that whoever they are lending money to has the employment stability to make monthly payments. If you show on your mortgage application that you’ve had spotty job history over the past 2 years (2 years is the primary time frame they look at) the lender isn’t going to necessarily decline your application, but they will look harder at it. You’ll have to explain any gaps. Being a college grad and now having a job in your field is actually a good reason for not having a solid two year employment history.
- Opening new credit accounts – one thing you’ll want to avoid is opening up new credit card accounts and other loans just prior or even during the loan application process. These can hurt your credit scores and impact how much you can afford/qualify. It’s not uncommon to see a first time home buyer go out the week before settlement and have a spending spree on furniture only to have their loan declined at the last minute because the lender did a last minute credit check to make sure nothing changed.
- No credit history – no credit is just about as bad as bad credit in the eyes of a mortgage lender. Only for certain loan programs (FHA, VA, USDA) can you get away with little credit – you’ll still need to prove some sort of housing payment – and cell phone payment etc. Best thing you can do is establish some sort of credit well in advance of applying for a mortgage.
- Staying with one lender quote – let’s face it – not all people out there have your best interest in mind – loan officers and bankers/lenders included. The best thing you can do is to shop around and get several mortgage quotes to give you the best deal. Also, don’t be afraid to negotiate.
- Money in the bank – unless you are getting a 100% financing deal from the VA or USDA you need to have money in the bank – and it needs to be in your bank account for months in advance. Don’t think it’s okay to put a lump sum of money into your bank account just prior to applying for a mortgage and having that pass the underwriter’s scrutiny. First question will be “where did the money come from?” You’ll need to explain it – a loan from a friend won’t cut it. It’s ok to get a gift from a relative, or even a loan (but be prepared to have the loan count against what you can afford) in some cases. Get your money in the bank at least 3 months in advance to be safe.
Ok, that’s a pretty extensive list – talk to your loan officer about these items. Many first time home buyers fall into these traps and first time home owners looking to refinance for the first time.