Qualifying For Mortgage And How Home Loan Process Works
Qualifying For Mortgage And How Home Loan Process Works
This BLOG On Qualifying For Mortgage And How Home Loan Process Works Was UPDATED On June 5th, 2018
Qualifying for a mortgage loan is now easier than it was several years ago.
- Qualifying for mortgage in 2018 is simpler and more streamlined with borrowers with less than perfect credit and higher debt to income ratios
- Agency guidelines are much more lax 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 the combination of lower mortgage rates and lenders loosening their overlays, many home buyers can qualify for mortgage with prior bad credit
- FHA, VA, USDA, Fannie Mae and Freddie Mac have been lowering credit standards
- GSE’s has been trying to promote home ownership
- More and more home buyers can qualify for a home loan
- Mortgage loan approval process can now take as little as three weeks with most mortgage lenders
- This is as long as the necessary documents requested by mortgage underwriters can be provided by borrowers in a timely manner
Mortgage Lenders Loosening Overlays
Mortgage lenders are still extremely cautious and very fearful of foreclosures.
- Lenders want to make sure that the borrower is qualified and has the ability to repay their mortgage loans
- New laws that was implemented in 2017 include Qualified Mortgage laws
- This includes lenders needs to make sure borrowers is suited for the particular mortgage loan
- Lenders need to make sure borrower has the ability to repay their new mortgage with no financial strain
- New payment is in line with minimum debt to income ratio guidelines
Requirement By Mortgage Lenders
Whether mortgage borrowers are first time home buyers, seasoned home buyers, or a refinance borrowers, lenders will require the same documents from every borrowers.
- 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 in order to get mortgage loan, it is not really that bad
- It will be bad for borrowers who are not organized with their paperwork
- But even borrowers who are not organized, things can be streamlined where it will not be as bad as it seems
Things that will be asked by lenders is the following:
- What is the current address
- How long has borrower lived current address
- If not lived for at least two years, need to provide a two year residential history
- Do you currently own property or renting?
- What is the amount currently paying for rent or mortgage?
- Have you been timely on rent or mortgage the past 12 months?
- What is the contact information for current landlord?
Income And Employment
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
Here are questions that the mortgage lender will ask you about income and employment:
- The name of employer and contact information?
- Have you been with current employer for two years
- If not, provide a two year employment history, gaps in employment history as well
- gross annual income
- copies of two years tax returns
- copies of two years W-2s
- most recent pay check stubs
- state whether an hourly employee, salaried employee, 1099 wage earner, or own own business
- 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?
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, prior short sale
- Will need a letter of explanation for what caused the derogatory credit signed and dated by mortgage applicant
- Borrowers can have unpaid collection and charged off accounts and still qualify for a mortgage loan
- However, cannot have government loans such as student loans that are delinquent or in collections
- Child support payments needs to be current and not in arrears
Debt To Income Ratios
Debt to income ratios will be carefully evaluated by the mortgage underwriter.
- 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% in order 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 nor debt to income ratio caps
Qualifying For Mortgage With Lower FHA Mortgage Insurance
On January 26, 2015, FHA has lowered the annual FHA mortgage insurance premium from 1.35% to 0.85% for all FHA borrowers with 30 year fixed rate FHA loans.
- This lowering of the FHA annual mortgage insurance premium has made qualifying for mortgage much more easier for home buyers with higher debt to income ratios
- Those with high debt to income ratios who needed to do a refinance mortgage also benefits with the lower FHA MIP
Qualifying For Mortgage With Low Down Payment
Fannie Mae and Freddie Mac has 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 who do not have much money for down payment on a home purchase can now qualify to purchase a home via a conventional loan with only a 3% down payment.