A home is, for most of us, the biggest purchase we’ll make in our lifetime. When it comes to applying for a mortgage, there are lots of things you should do to increase your chances of success…and quite a few that you shouldn’t!
The first step is working with a lender to get financing.
The Mortgage Application
Talk to several lenders to learn what types of loan programs they offer, and fill out a mortgage application for each. This can usually be done in office or online. There’s no need to worry that submitting multiple loan applications will affect your credit score. Your score won’t suffer as long as you submit them all within a 45-day period.
Have Your Documentation Ready
Your lender is going to need various kinds of documentation to determine if you can afford the mortgage:
- Proof of Income: This includes W-2 forms, pay stubs, bank statements, and any other proof of income.
- Tax Returns: Lenders will require your most recent tax returns.
- Debts: Lenders will need to know how much debt you carry including rent payments, student loans, car payments, credit cards, and other debts. They’ll use this information to calculate your Debt-To-Income ratio (DTI). This ratio is your total monthly debt payments divided by your gross monthly income. For example, if your monthly payments total $2,000 and your monthly gross income is $6,000, then your DTI ratio is 33%. In most cases a DTI of 43% is the highest you can have and still qualify for a loan.*
- Assets: Investments, savings accounts, bonds or other assets help beef up your financial profile.
The Loan Estimate
After receiving your loan application, by law the lender has three days to give you a Loan Estimate form. This is a detailed disclosure showing the loan amount you qualify for, loan type, the interest rate, and all the costs associated with the mortgage. These include homeowner’s insurance, mortgage insurance, closing costs and property tax. If you’ve applied to more than one lender you can use the Loan Estimate forms to compare their terms and fees.
Once you’ve decided on a lender they’ll issue you a Pre-Qualification form. This form will state the amount of loan you are prequalified for or, in other words, how much money the lender is willing to lend you. With this document in hand, you’re ready to make an offer on a home. If you have more questions about Pre-Qualification, check out this blog post dedicated to that subject.
The Mortgage Process
You may think that once you’ve got your Pre-Qualification and have an accepted offer on a home that your work is done. Not so. Your lender will request money to pay for your credit report and an appraisal of the home you’re purchasing. You’ll also have a ten-day period to have various inspections of the home done.
Within a few weeks loan processing takes over. This is when every statement you’ve made on your loan application goes under the microscope. Be prepared for questions and requests for more documentation. Answering truthfully and providing the requested documents quickly will keep the process moving along.
Finally your loan goes to the underwriter. The underwriter’s job is to judge the risk of lending money to you on this property. What’s your DTI? Do you have enough cash flow to make the payments? Do you have a history of paying your bills on time? Did the home appraise for the purchase price? Is there a clear title?
The Clear to Close
Finally you get the happy news from your lender that you are “Clear to Close.” Now the lender is required to send you another form called the Closing Disclosure or CD. This must be sent to you three business days before the closing. You’ll need to compare this disclosure with the loan estimate you received to make sure that none of the quoted fees or numbers have changed. If all looks good, you’ll sign the CD and the title company will make arrangements for you to sign your documents.
What Not To Do
With everything you’re required to do to get a mortgage, there are a few things you absolutely must not do if you want to be approved:
- Don’t change jobs. Your mortgage depends on you having an income that will allow you to make your mortgage payments. A job change could mean an income adjustment that could change the amount you’re approved to borrow.
- Don’t deposit cash. Cash is hard to trace and an underwriter could see a large cash deposit as evidence of borrowed money affecting your DTI.
- Don’t close or change bank accounts. Again this makes it hard to track your assets.
- Don’t make large purchases. Financing a car or furniture will add to your DTI and might affect your ability to qualify for your mortgage.
- Don’t miss credit card or loan payments. This will affect your credit score and may cause you to be declined for your mortgage.
DO Contact The Donnelly Group!
If you have any questions about applying for a mortgage or taking the first steps to buy a home in metro Phoenix, please contact the Donnelly Group at 480-792-9700 or by email. We would love to help you get on your way to home ownership!