Getting a mortgage today is simpler and quicker than you might imagine, so being prepared before you approach your possible lenders is of utmost importance.
Looser Rules, Tougher Questions
Although financial institutions are starting to approve more mortgages today than as little as 3 years ago, it does not mean you should be unprepared. The new Qualified Mortgage (QM) law and the Ability-to-Repay rule have forced lenders to ask a series of mandated questions of prospective home buyers. The good news for you is that they are a standard set of questions that you can be prepared for which can ensure the lowest rate possible. Documentation requirements will be different across lenders, but there are standards that most will ask for. If you are prepared for these document and questions the process can be completed quicker and more efficiently.
New Rules, New Questions
The Federal government enforced new rules on mortgages that started in January 2014 and require borrowers to maintain debt loads no more than 43% and for lenders to cap loan fees as a percentage of the total loan amount. These questions required by the lenders touch on 5 major areas of your life and deal mainly with your financial health. Be ready for questions regarding your residential history, employment and income, credit scores and history, monthly debt obligations, and liquidity and bank accounts.
Residential History
Your residential history must be provided to the lender. This includes if you are currently renting or you own your own home. Questions will also be asked on your payment history and if you have ever been late in paying your rent or current mortgage. How much do you currently pay and the contact information for current and previous landlords up to 24 months will also be required. The lender will also attempt to acquire a Verification of Rent or Mortgage (VOR/VOM) on your behalf to verify your payment history that may not be available in a credit bureau.
Employment & Income
You will need to provide full verification of your current employment and income. This means contact information and proof of payment from your current employer. The lender will want to know how long you have been an employee and the type of employee you are, W-2, 1099 or self-employed. This will also be required for the last 24 months. The QM law makes this verification process a requirement very rarely excused.
Credit Score & History
Besides employment and income having a direct bearing on your approval for a mortgage, your credit score and history is the most important aspect on determining your actual mortgage rate. The better your credit score and history, the better your mortgage rate should be. Before attempting to contact a lender, you should pull up your own credit bureau through a free service to ensure there are no errors that will affect your ability to get a mortgage or raise your mortgage rate. Lenders besides wanting your credit history will want to know if you have ever declared bankruptcy or defaulted on loan payments in the past. Be sure to provide all 3 of your available credit scores.
Monthly Debt Obligations
The largest determining factor to establish the amount of mortgage that you will be eligible for is your monthly income to monthly debt ratio. Knowing your exact cash flow situation will be able to confidently show the lender your current ability to pay a mortgage. Be able to provide any and all loan payment information including student loans, car loans or personal loans. Other monthly debt obligations can include credit card balances, alimony or child support or any other recurring monthly debt obligation that does not show up on a credit bureau. This total monthly amount must be less than 43% of your gross monthly income, be sure it is or you may not qualify for a mortgage.
Liquidity & Bank Accounts
Your personal liquidity essentially refers to how much cash reserves you have in order to complete the sale of a home to cover all the costs involved including the down payment, closing costs, taxes, lawyer's fees, moving costs and at least 2 months of mortgage payments. The lender will want verification of your current account balances on all financial instruments you have including checking and savings accounts, investments in bonds, stocks or other securities and even retirement accounts.
By having all required documentation and verification in the five main areas that a lender will request you can be assured of a quick and efficient mortgage process with your chosen lender.
Looser Rules, Tougher Questions
Although financial institutions are starting to approve more mortgages today than as little as 3 years ago, it does not mean you should be unprepared. The new Qualified Mortgage (QM) law and the Ability-to-Repay rule have forced lenders to ask a series of mandated questions of prospective home buyers. The good news for you is that they are a standard set of questions that you can be prepared for which can ensure the lowest rate possible. Documentation requirements will be different across lenders, but there are standards that most will ask for. If you are prepared for these document and questions the process can be completed quicker and more efficiently.
New Rules, New Questions
The Federal government enforced new rules on mortgages that started in January 2014 and require borrowers to maintain debt loads no more than 43% and for lenders to cap loan fees as a percentage of the total loan amount. These questions required by the lenders touch on 5 major areas of your life and deal mainly with your financial health. Be ready for questions regarding your residential history, employment and income, credit scores and history, monthly debt obligations, and liquidity and bank accounts.
Residential History
Your residential history must be provided to the lender. This includes if you are currently renting or you own your own home. Questions will also be asked on your payment history and if you have ever been late in paying your rent or current mortgage. How much do you currently pay and the contact information for current and previous landlords up to 24 months will also be required. The lender will also attempt to acquire a Verification of Rent or Mortgage (VOR/VOM) on your behalf to verify your payment history that may not be available in a credit bureau.
Employment & Income
You will need to provide full verification of your current employment and income. This means contact information and proof of payment from your current employer. The lender will want to know how long you have been an employee and the type of employee you are, W-2, 1099 or self-employed. This will also be required for the last 24 months. The QM law makes this verification process a requirement very rarely excused.
Credit Score & History
Besides employment and income having a direct bearing on your approval for a mortgage, your credit score and history is the most important aspect on determining your actual mortgage rate. The better your credit score and history, the better your mortgage rate should be. Before attempting to contact a lender, you should pull up your own credit bureau through a free service to ensure there are no errors that will affect your ability to get a mortgage or raise your mortgage rate. Lenders besides wanting your credit history will want to know if you have ever declared bankruptcy or defaulted on loan payments in the past. Be sure to provide all 3 of your available credit scores.
Monthly Debt Obligations
The largest determining factor to establish the amount of mortgage that you will be eligible for is your monthly income to monthly debt ratio. Knowing your exact cash flow situation will be able to confidently show the lender your current ability to pay a mortgage. Be able to provide any and all loan payment information including student loans, car loans or personal loans. Other monthly debt obligations can include credit card balances, alimony or child support or any other recurring monthly debt obligation that does not show up on a credit bureau. This total monthly amount must be less than 43% of your gross monthly income, be sure it is or you may not qualify for a mortgage.
Liquidity & Bank Accounts
Your personal liquidity essentially refers to how much cash reserves you have in order to complete the sale of a home to cover all the costs involved including the down payment, closing costs, taxes, lawyer's fees, moving costs and at least 2 months of mortgage payments. The lender will want verification of your current account balances on all financial instruments you have including checking and savings accounts, investments in bonds, stocks or other securities and even retirement accounts.
By having all required documentation and verification in the five main areas that a lender will request you can be assured of a quick and efficient mortgage process with your chosen lender.
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