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Slowly but surely the real estate market is inching toward some sort of normalcy. Still we are experiencing a soft market where there is plenty of inventory and some eager buyers who want to avail the amazing interest rates and other concessions being offered to buyers these days.
While interest rates remain the number one motivation for many buyers who are buying their first home, moving up into something better or investing in a property – the fact remains that the mortgage industry is tight. Lenders are being faced with myriad regulations both in-house and through the government agencies that are largely insuring many of the loans today.
It is critical that you, as a prospective buyer, obtain prior approval for a mortgage. Not only will this give you an extra edge over other buyers who many not have done so, but it will also provide you with a snapshot of exactly what you can afford. Sellers like nothing more than to see a pre-approval letter along with an offer. It demonstrates that the buyer is serious and it also shows that a lender has offered them a preliminary amount with which to work.
Credit Really Does Matter Most
At one point more than a few years ago there was a plethora of advertisements claiming to provide anyone and everyone with a home loan – regardless of bad credit. Gone are those days, in fact, credit is the very first thing considered before a loan officer will even process a loan application. The minimum FICO score for an FHA loan is now 620, with a preference of course to a higher score. It also goes without saying that the higher a score is the better an interest rate or other terms one will likely enjoy.
Be sure to view your credit report before you embark on a home buying journey. Know exactly what items are on the report, dispute any errors well before you apply for a mortgage so that your chances of getting an approval are greater and rectify any bad credit concerns you may see on the report.
Past Income History Weighs In Heavy
Right up there with credit health is your financial health. Lenders will require two years of income tax statements along with W2s and any other attached schedules if you are a self-employed borrower. Your mortgage loan officer will carefully review all aspects of your income and whether you write off any specific expenses. To help avoid the risk of mortgage fraud, more and more lenders are requiring the 4506t process to be completed, to verify income tax filing accuracy directly with the IRS. Anything that goes against your income will be carefully weighed in making their decision.
Be Sure You Can Prove The Source of Cash
Large deposits are a major issue that many prospective homeowners do not realize comes up in mortgage loan applications. Each and every dime must be accounted for when it comes to incoming cash and deposits that are larger than $1000. What this means is that you cannot dip into your secret stash of cash and suddenly present a down payment to your lender. You must be able to prove the source of all large deposits – both those that appear in the two previous bank statements that will be provided as part of the application and also in case of any new deposits.
Since cash gifts are allowed for down payments and closing costs, this same scrutiny will be applied to those who are providing the cash gift to the buyer. This means that if friends or family members are helping you with your closing costs, there is a chance each and every one will be required to show the source of their funds.
Job History Shows Responsibility
Lenders need to know that you are reliable and that your income is stable. The standard method is through an analysis and confirmation/verification of your work history. It is essential that any and all gaps be accurately reported though lenders prefer to see at least two years on the same job. Unknowingly to many home loan applicants, things like overtime, shift differentials and self-employment or business income are things that affect the income calculation used to determine eligibility and approval.
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It is not as easy as pie to get a mortgage loan anymore but these days there are still many buyers that are successfully getting into new homes and at historic rates. It’s more important than ever to be fully prepared going into the process, providing your loan officer with anything they need – in a timely and efficient manner. This will ensure a smooth transaction for the seller, Realtor – and most importantly, the buyer.
