When stepping into the world of mortgages, far too many mortgage newbies, find applying for a mortgage as nerve-racking as learning calculus in Portuguese. While it doesn’t have to be, all too often mortgage novices find the path to obtaining a mortgage anywhere between confusing and painful.
Familiarizing yourself as you enter the world of finance includes understanding the methods and criteria upon which an underwriter approves a mortgage application. These two fundamental objectives are critical if you are to find yourself capable of ‘hitting ground running’ when you realize you need a mortgage sooner than you thought.
Think of the Advice that follows as the Cliff Notes to mortgage financing.
Preliminarily, a borrower who is actively looking for a home should begin their mortgage research long before the find their ‘must have’ home. An early start allows for the often-needed extra time this process requires, an often-valuable asset to have on your side.
A borrower begins by providing detailed information about themselves. This includes your address, a date of birth, your employer and your liabilities/assets, among others. Gather the following items to begin the process:
- Personal Identification
- Alimony/Child Support Agreement, if applicable
- Signed sales agreement
- Rental Lease Agreements for income properties
Breaking Down How Mortgage Underwriters Approves an Application
Once the borrower’s basics are provided, underwriters base their final analysis on three fundamental questions.
1. How likely is it that the borrowers will be willing to repay the debt as agreed?
This speaks to a person’s credit history, as the best predictor of future behavior is past behavior.
Documentation includes:
- Proof of timely rental payments; canceled checks
- Credit Report, Score
- Credit Card Statements
2. How likely is it that the borrowers will be capable of repaying the debt as agreed?
Does the borrower switch jobs often? Do public records indicate a history of conflict? Documentation includes:
Income Documentation
- Paystubs, 2 years of 1040’s, if self-employed (1120’s)
- 2 years W-2’s
- Profit and loss statements
- Authorization to request tax returns from the IRS
- Rental Leases
Asset Information – Verifies the applicant’s assets to determine income, and reserves.
- 3 -6 months of Bank Statements
- Statements for Keoghs, IRA’s, 401K’s
- Down Payment/Gift Letter Source
3. If the predictions to questions 1 or 2 fail, what is the collateral the bank is holding?
The bank understands the quality and value of the collateral through the professional appraisal they required.
If you can find a way to elude the anticipatory anxiety usually experienced, you might find that learning calculus in Portuguese is not are bad as you once thought. Please contact us for any questions you may have about the mortgage application process – we want to provide you with an honest and pleasant mortgage loan experience!
