Understanding Mortgage Application Process To Avoid Delays

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Understanding Mortgage Application Process To Avoid Delays

This BLOG On Understanding Mortgage Application Process To Avoid Delays In Home Closing Was UPDATED On April 11th, 2019

Applying for a mortgage application has become much easier than a few years ago despite the countless of mortgage lending guidelines.

  • Home buyers with prior bad credit, prior bankruptcy, foreclosure, deed in lieu of foreclosure, and a short sale can now qualify for Home Loans
  • Many home buyers do not realize that they can actually qualify for an FHA loan with only a 3.5% down payment requirement with 580 credit scores
  • Mortgage lenders do require income and want to see borrowers has the ability to repay (QM) their mortgage
  • They like to see job stability and see the likelihood that their employment will continue for the next three years
  • For first time home buyers, applying for a mortgage may seem like an endless task with the mortgage lender asking them for dozens of questions as well as documentation
  • Borrowers should take time to Understanding Mortgage Application Process
  • Be prepared to be asked many questions, provide documents as well as letters of explanations prior to and during the mortgage application process

Understanding Mortgage Application Process is crucial for borrowers to avoid stress during mortgage process. Understanding Mortgage Application Process makes borrowers understand why mortgage processors and underwriters ask certain conditions.

Understanding Mortgage Application Process Of Lender

Whether dealing with a local bank, credit union, mortgage banker, or mortgage broker, they all will be asking borrowers the same questions. The main objective they have is whether borrowers have the ability to repay the mortgage loan and afford the mortgage payments as well as their other monthly expenses. Not all lenders have the same mortgage process. Some lenders may have loan officers issue pre-approval letters in a matter of a few hours while other lenders will take a week for a pre-approval letter because all of their pre-approvals are TBD Property Underwriting Approvals:

  • All lenders will need to see documented income, liabilities, and assets
  • Two years tax returns and two years W-2s as well as 60 days bank statements are mandatory
  • Any irregular deposits need to be sourced
  • Borrowers with prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale, all documentation pertaining to these needs to be provided
  • Divorce decrees, child support payments, alimony payment all need to be provided as well as all pages of the payment agreements
  • Rental verification may be required
  • If a lender requests rental verification, the only way it can be proven is by providing 12 months canceled checks that have been paid to the landlord
  • If the mortgage loan applicant has been paying his or her landlord cash, rental verification cannot be used
  • Renters leasing their home from a registered property management company can have property manager complete and sign a VOR Form in lieu of providing lender 12 months canceled checks and/or bank statements

Questions Mortgage Lenders Often Ask

Mortgage lenders are required to ask borrowers for two years of employment history and residential history among other personal and/or financial information:

  • Lenders want to know whether borrower are either renting or living with family
  • Rental verification is a huge compensating factor due to payment shock
  • Here is a case scenario on payment shock:
    • If the renter can provide rental verification that they are currently paying $1,000 per month in rent
    • new proposed housing payment on a new home will be $1,100
    • the home buyer will have very small payment shock because new proposed mortgage payment is only 10% higher than the current rent payment
  • However, if living rent-free with a family member and new proposed housing payment is $1,100 then the home buyer will have significant payment shock because they are going from zero to $1,100 per month

Borrowers do not have to have been employed for two years straight.

  • Borrowers can have gaps in employment
  • Lenders require borrowers to provide a two-year employment history overall employment history
  • College and trade schools can count towards work history as long as transcripts can be provided

Credit And Credit Payment History

Borrowers overall credit history will be reviewed and each derogatory account will be reviewed:

  • It is alright to have prior bad credit and still get a mortgage loan approval
  • Everyone has had a period of bad credit throughout their lives due to unemployment, business loss, divorce, or other extenuating circumstances
  • Isolated incidents of periods of bad credit are understandable and so is bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale
  • However, mortgage lenders like to see borrowers have re-established credit after a period of bad credit
  • Almost all mortgage lenders like to see borrower paying their bills timely for the past 12 months
  • Recent multiple late payments can be a problem
  • One or two late payments in the past 12 months are not necessarily deal killer
  • Borrowers with a long history of bad credit and late payments will have issues
  • Derogatory credit over an extended period of time without extenuating circumstances shows disregard for credit
  • Credit scores are extremely important because it dictates whether borrowers qualify for a particular mortgage program
  • Credit scores always dictate mortgage rates

Debt To Income Ratio

Debt to income ratio is one of the most important factors in the mortgage application process.

  • Conventional mortgage loan programs have a cap of 50% debt to income ratios 
  • There is no front end debt to income ratio requirements on conventional loans
  • Front end debt to income ratios are the housing ratio
  • FHA has a cap of 46.9% front end debt to income ratio and 56.9% back end debt to income ratio

Assets And Reserves

Mortgage lenders will require 60 days of bank statements.

  • Any irregular deposits need to be sourced
  • Mortgage underwriters will want to see enough funds for the down payment and closing costs
  • In the event, if there are not enough funds for closing, then gift funds may be accepted from a family member
  • Mortgage lenders do not like to see any bank overdrafts in the past 12 months
  • Bank overdrafts are one of the most negative things for borrowers
  • Some mortgage lenders will deny a mortgage loan application even with one bank overdraft in the past 12 months
  • One or two overdrafts is not a deal killer with some lenders with a good letter of explanation

Gustan Cho

www.gustancho.com

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