7 Things to remember before Submitting Your Mortgage Application

imagine you found a house of your dream but you don’t have enough finance and you go to the bank to the mortgage loan only to be denied loan. Yes, this scenario is very much possible. There are many reasons why a bank will deny your loan. Two of the most common reasons are bad credit history and poor income sources.

With mortgage rates rising as the Federal Reserve slowly inches interest rates up, people who have been on the fence about buying a house have realized they need to act soon or risk paying more every month. — Fool.com

Applying for a mortgage is never simple, but it’s even trickier when you don’t know what to expect. When you step into the room of the loan officer, you must be prepared to provide every big or small detail that will help you get the loan.

If you’re preparing to buy a house for the first time, you can make the process easier on yourself by learning as much as you can ahead of time. Knowing the modus operandi of mortgage applications allows you to plan ahead and improve your chances of getting a mortgage with favorable terms.

What is a Mortgage Loan?

A mortgage is a loan taken from a bank and other financial institution that allows a borrower purchase a home. The collateral for the mortgage is the home itself, meaning that if the borrower isn’t able to repay monthly payments to the lender or defaults on the loan, the lender can sell the home and recover its money. This process is known as foreclosure.

7 Things to Remember before submitting your Mortgage Application

Let’s talk about how you can get your loan approved 99 out of 100 times. Here is the list of the ten most important things to remember before submitting your mortgage application.

Know Your Budget

First and foremost, know how much you’re willing to spend on your new home? This is the most important criteria to get a mortgage loan. You’re less likely to get a loan that exceeds your need because you can’t afford it. The lender will figure this out by looking at your debt-to-income ratio (DTI): the percentage of your income that you’re spending each month to pay your debts, among other things.

Most lenders use the 28/36 rule, i.e.

• You shouldn’t more than 28% of your income on your mortgage payment.
• Your mortgage plus other debts shouldn’t eat up more than 36% of your income. The debts generally include potential mortgage, car loans, and any other monthly installment payments you make.
• Before submitting a mortgage application, you can consult with the lender and get a quick pre-qualification letter to ascertain how much you can qualify to borrow.
• Increase Your Income so you can qualify for a bigger home loan. Reduce your debt and start paying off all the debt such as credit card debt, student loans, etc. even before applying for a mortgage loan.

Understand the market you’re buying in

The real estate market differs from one region to another or one neighborhood to another. In many cases, the types of loans you wish to get depend on the market and the type of home you buy. The real estate market is mired with strict principles such as in Florida where lenders have stricter standards when it comes to buying a home. In many cases, they examine not only your finances but also the finances of the building. You might be required to pay a 25% down payment.

A real estate professional can help you ascertain the local lending standards and even suggest the type of property you should buy and the location. This will greatly improve your chance to get a mortgage loan approved.

Save Up for a Down Payment

The best thing the new homeowners can do is saving up for a big down payment which will greatly improve your chance to get the rest of the financing from the bank. If you have no other debts to pay off and you can’t increase your income. This will help to shrink the size of the home loan you need.

If you can manage a down payment of at least 20 percent, you won’t need private mortgage insurance, which will lower your monthly payment.

Be careful about getting big deposits in your account just before applying for the mortgage. Your relatives can definitely chip in to cover your down payment but you can’t deposit the money into your account without properly documenting it.

Experts suggest that making a large deposit into your bank account prior to visiting a mortgage lender will look bad. They wish to see that you have plenty of money in your account that’s been there for at least two months.

Boost Your Credit Score

A good credit score gives a boost to your chances of getting a mortgage. It will help you to qualify for a better interest rate that can save you thousands of dollars over the life of your loan. Lenders always check your credit reports such as previous loans, payment history, and everything else about your finance. A high credit score becomes essential to get a loan because the bank trusts that you will repay them back.

Here is how you can raise a credit score by more than 100 points in days, not months.

• Non-occupied co-signers may be another option. These are individuals — usually family members — who help you qualify for the mortgage but do not plan to live in the house.
• The lender considers the co-applicant’s income along with yours. This reduces your debt-to-income ratio and improves the chances that you will be approved.
• If you were turned down to the appraised value, it may be worth looking into using another lender. Different lenders often use different appraisers.
• Because appraisals are considered opinions of value, one appraiser may come up with a higher value than determined for your first mortgage application.

Know Your Loan Options

Where it comes to mortgage loans for buying homes, you have many different loan options. If your application was denied due to your credit score being too low for a conventional loan, perhaps you’d qualify for an FHA loan instead. They have less flexibility for higher debt-to-income ratios than their FHA counterpart. However, a lender won’t tell you that because they either have little experience with other loan types or they won’t like to offer you an alternative.

Here are a few things to look into:

• The difference between fixed-rate and adjustable-rate
• FHA and VA home loans
• Special programs for first-time homebuyers in your state
• Factors that affect your interest rate, like loan term and points

Falling Behind on Bills

Falling behind on bills is one of the biggest reasons your credit score looks bad. It’s best to work on improving your score and protecting it before you apply for a mortgage. And missing bill payment deadlines could potentially hurt your score, like missing bill payment deadlines.

Many lenders use the FICO scoring model. The lender will run a credit check to get your FICO (Fair Isaac Corporation) score. FICO Scores are based on different factors of your credit data report. This data is grouped into five categories;

• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• New credit (10%)
• Credit mix (10%)

If history shows that you can’t pay your bills on time, your lender will likely assume that you’ll make late mortgage payments too.

Get Your Paperwork in Order

Although the last step before applying for a mortgage loan, getting paperwork ready and proper is the most essential step. Once you’ve found the right loan and the right lender, the last thing to do is prepare all the documents you’ll need to apply for a loan.

• Most lenders will expect to see your pay stubs from the past month, tax returns from the past year, and a few months’ worth of bank statements.
• Credit card and loan statements and proof of your assets, such as retirement funds and other investments.
• You will need to have documentation to explain any unusual (generally non-payroll) large deposits or withdrawals.

Although it doesn’t guarantee that your application will be passed, it will ensure that the entire process will be smoother.

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Mark Grey Law PLC is the best attorney law firm in Ankeny. We run a small private firm with few of the great Real Estate Attorney in Ankeny. Get in touch with us to find out more about ways to improve your chances of getting a mortgage loan approved by the said bank.