Home Mortgage Loan Guide: 10 Steps to an Easy Approval
Getting a home loan involves multiple parties and a lot of moving parts. Your mortgage lender is the one that keeps all these parts moving in the right direction and at the right time. Your loan application will be documented and various third party services will be ordered. Yet even if this isn’t your first time going through the mortgage process, sometimes it can still be a bit overwhelming. Your mortgage lender will make sure you make it to the closing table on time but here are 10 things you can do to help make the approval process an easy one.
1: Check Your Credit First
Before you get too much further into the mortgage application, get a free copy of your credit report. You can get a free one once per year at www.annualcreditreport.com, a site supported by the three main credit repositories. You won’t see the same credit score that lenders use but what you’re really looking for are mistakes. If you see any discrepancies, document the error and provide it to your loan officer after you submit your loan application. Your loan officer can fix mistakes typically within 24 hours whereas it could take 30 days or more if you tried on your own.
2: Gather Your Financials
Unless you’re VA eligible or buying in an area eligible for a USDA home loan, you’ll need money for a down payment plus closing costs. FHA loans ask for a down payment of at least 3.5% while conventional mortgages need at least a 5.0% down payment. You’ll also need funds for closing costs as well. Gather your most recent bank and investment statements you’ll be using to close on your purchase and make sure you provide all pages of these statements, even if the pages are blank.
3: Get Employment Documentation
Lenders will need to document your employment and income using third party sources. For example, you’ll need to supply your most recent pay checks stubs from your employer covering a 30 day period. You’ll also need to gather up your W2 form from the past two years. If you’re self-employed, you’ll be asked to provide your two most recent federal income tax returns as well as a year-to-date profit and loss statement.
4: Start the Conversation
Your real estate agent can provide you with some referrals to a loan officer but you should also do some searching on your own. It’s best to work with someone locally who knows the area and has established working relationships with those who will be needed to help document your loan file. Get some suggestions from friends, family and coworkers.
5: Listen to Your Lender but Speak Your Mind
Based upon your personal situation and your future plans, your loan officer can craft some mortgage loan options for you. Establish a relationship with your loan officer and pay attention to what they ask for. You’ll be given a list of items you’ll need to provide but don’t just sit there and take notes. Ask questions. Ask as many as you can to both get clarity on the process as well as the type of loan programs made available. Don’t just accept the loan proposals but ask why the loan officer suggests them to you.
6: Deliver What’s Asked For
When you submit your loan application along with your income documentation, your loan will be electronically submitted to an automated underwriting system that will provide an additional list of what will be needed in order to close your loan. Sometimes there will be some additional information needed that clarifies something about your application. Your loan officer and the mortgage company wants to handle as little paper as possible so they’ll only ask for what’s needed. When asked, deliver what’s needed and understand why the loan officer is asking for it.
7: Keep it Steady
Your loan application will be evaluated based upon the information provided. This means don’t change anything after your loan has been submitted. Don’t change jobs. Don’t start a new business. Don’t make any large purchases and if there are any deposits to your checking or savings account that don’t match up with your regular income stream, make sure you document the source.
8: Answer Conditions Quickly
Mortgage loans go through an initial approval process and then a formal one. The underwriter at the mortgage company is responsible for making sure your loan application conforms to proper lending guidelines and you may be asked to provide clarification on some matter or provide updated statements or pay stubs. Some may be inclined to say, “What do you need that for?” or some such query but it’s typically something no more than updating information in the file. When asked for more documentation, provide it as soon as possible. Many times loan documents can’t be delivered to escrow without the proper documentation.
9: Follow the Rates
Mortgage companies usually won’t guarantee, or “lock” an interest rate without a completed loan application. Once submitted and you have your preapproval letter in hand, it’s up to you to keep in close touch with your loan officer to track and lock in your rate. While your loan officer should communicate rate information to you, understand the loan officer is also working with multiple loan applications with different rates and loan programs. If rates are the same now as when you first submitted your loan and you feel comfortable with the interest rate, go ahead and lock it in and give your lender plenty of time to finish processing your loan application.
10. Save More Than You Need
A mortgage company wants to see some liquid funds available in your bank accounts more than what is needed for a down payment and closing costs. To obtain an easy loan approval, try to save up at least three to six months’ worth of house payments, including a monthly amount for property taxes, insurance or HOA fees when required. These additional funds are called “reserves” and while these reserves won’t be touched, it will improve the approval process.