Home Buying And Mortgage Process And How To Prepare For A Mortgage
This Article Is About The Home Buying And Mortgage Process And How To Prepare For A Mortgage
Home Buyers, especially first-time home buyers, should prepare ahead of time before starting the home buying and mortgage process. In this blog, we will cover preparing for the home buying and mortgage process. We will be covering the do’s and don’t prior to the home buying and mortgage process.
Mortgage Lenders like to see the following:
- Stable Employment History
- Likelihood current employment is likely to continue for the next three years
- Consistent income and enough assets to cover down payment and closing costs
- Payment history of borrower and track record of paying on time
Do Not Change Jobs Before Starting Home Buying And Mortgage Process
Many home buyers feel confident their jobs or the field of work they are in are secured. This is one of the main reasons they are purchasing a new home. The economy is hot. Many talented employees are in demand and are constantly being recruited. However, do not change jobs before starting the home buying and mortgage process. Do not give notice to an employer of quitting either. This is because when lenders do verification of employment, one of the questions they will be asking is if the likelihood of continued employment for the next three years is likely.
If the employer states that the employee gave notice they will be retiring at the end of the year, this will disqualify the borrower from qualifying for a mortgage. Borrowers can change jobs and do not have to be employed with the same employer for the past two years. However, there may be delays in closing a home loan with changes in employment. Again, changing jobs in the same field of work in the past two years is not a deal killer. If it can be avoided and delayed until after closing, it will make the home buying and mortgage process much easier.
Changing W2 Income Wage Earner To 1099 Status During The Home Buying And Mortgage Process
As mentioned in the earlier paragraph, changing jobs is not recommended during home buying and mortgage process but is not a deal killer. A deal killer is when a W2 wage earner changes jobs and becomes a 1099 wage earner. If this happens, borrowers need to wait two years as a 1099 wage earner to qualify for a home loan. Every loan program, whether they are government or conventional loans, has the same mortgage guidelines on the two-year seasoning of 1099 wage earners.
Self-employed and 1099 borrowers need two years of federal income tax returns to qualify for mortgage loans. On the flip side. if 1099 wage earners convert to W2 wage earners, there is no two-year seasoning period. If 1099 wage earners get a W2 income job or if their current employer turns them into a W2 wage earner, they can qualify for a mortgage right away.
Home Buying And Mortgage Process: Importance Of Timely Payments In Past 12 Months
One of the most important and key factors in getting an approve/eligible per Automated Underwriting System Approval is to have been timely in the past 12 months. Consumers can have the best credit scores and debt to income ratios but with late payments in the past 12 months, they may not get an automated approval per AUS. All manual underwrites on FHA and VA Loans require timely payments in the past 12 months.
Borrowers can have outstanding collections and charged-off accounts and do not have to pay them off. However, they do need to have been timely in the past 12 months.
Do Not Incur New Debts Especially Car Payments
Car Payments are the biggest monthly payment most consumers have and often affect buying power on a home purchase. Do not purchase a new car during the home buying and mortgage process. The average new car payment is $400 per month which is equivalent to an $80,000 home mortgage. Pay down all revolving accounts to 10% of the credit limit.
If larger purchases need to be made with credit cards, try to spread the charges with several credit cards so it does not exceed 30% balance of the available limit Maxed-up credit scores can plummet credit scores. By doing so, will keep credit scores optimized and as high as possible during home buying and mortgage process.
Everyone should have at least three credit tradelines. Those who do not, get three secured credit cards with $500 credit limits. Not having any credit tradelines will yield low credit scores.
Consumers with more than 3 credit tradelines, do not apply for any additional credit cards. Do not apply for any new credit or incur new debt prior to and/or during the mortgage process. Under no circumstances close out any revolving accounts even though it is not used.
Do not be making any non-payroll check deposits that are greater than $500 to any bank accounts that will be used and/or listed on mortgage application unless it can be sourced and a paper trail can be provided documenting the source of deposit. Needs to be proven it is the borrowers and not a gift if it will be used as qualified funds. Do not have any overdrafts in bank statements in the past 12 months. Lenders will ask for 60 days of bank statements. If borrowers did not have any overdrafts in the past 60 days but did have overdrafts in the past 12 months, mortgage underwriters will find out about it.
The reason being is YTD Overdraft Fees is a line item on all bank statements. So if there is a figure there, borrowers are telling on themselves. Depending on lenders, one overdraft in the past 12 months may be a deal killer.
Borrowers with overdrafts in the past 12 months, do not turn in bank statements.
Go to the bank teller:
- get 60 days bank printouts
- have teller sign, date, stamp
This works because there is no YTD Overdraft Fees line item on bank statement printouts
Own Sourced Versus Gift Funds
Lenders prefer own funds by borrowers. Gift Funds are not viewed favorably. However, gift funds are allowed but need to follow guidelines on gifted funds. If intending on using gift funds for a down payment and/or closing costs, the donor needs to sign a gift form which is provided by the lender.
Bank statements from the donor are required showing the transfer of funds to the borrower’s bank statements. All deposits on the donor’s bank statement will be processed and underwritten as if they were borrowers’ accounts. 30 days of donor’s bank statements are required. Try to save as much as possible prior to the home buying and mortgage process.
Lenders like to see borrower’s habit of saving money and assets.
Credit Disputes Prior To Mortgage Process
Credit Disputes will halt the mortgage underwriting process until the credit disputes are retracted. Most homebuyers often hire credit repair companies prior to home buying and mortgage process. Credit repair is often not needed and in many instances causes more damage than good. Borrowers can qualify for a mortgage with outstanding collections and charged-off accounts without having to pay them off. The Key is being timely in the past 12 months. Leave the old collections and charged-off accounts alone and be timely on all payments in the past 12 months and borrowers will get mortgage approval.
Qualifying For Mortgage With Direct Lender With No Overlays
Home Buyers with less than perfect credit or higher debt to income ratios, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. You can also email us at [email protected] Over 75% of our borrowers are folks who either gotten a last-minute loan denial or are stressing during the mortgage process with the current lender. We have no lender overlays on government and conventional loans. All of our pre-approvals are fully underwritten and signed off by our underwriters.