How To Ace Your Loan App
Buying a home today in San Diego is an exciting decision, but in today’s changing mortgage market, it can be a very stressful as well.
I’ve documented success stories from hundreds of transactions that have closed smoothly over the years, and have come up with a bullet-proof cheat sheet for ACING your mortgage application.
Know Your Credit Score
The first step in getting pre-approved for a mortgage involves pulling a copy of your credit report and conducting a pre-mortgage credit analysis. Most banks (including our bank) require a 630 minimum credit score. Conventional Fannie Mae financing requires a 660 minimum credit score.
In addition to a qualifying credit score, banks will require 3 tradelines (accounts) that have a 12-month payment history reporting on your credit report. If you do not have 3 tradelines reporting on your credit report, we can support your credit history with non-traditional credit (bills, accounts paid monthly that don’t report to your credit – auto insurance, utility bill, cell phone, rent …), but this can take some time to build.
If you’ve missed the mark as it pertains to your credit score, you can still purchase a home. Many people think that you cannot buy a home with a bankruptcy, shortsale or foreclosure on your credit report, and that simply is not the case. It is important to speak with a mortgage professional that understands credit and is equipped to help you begin a credit repair immediately. As always, my Team would be happy to review your credit report with you and give you appropriate feedback for getting approved to purchase a home.
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Documenting Your Employment History
Banks require a 2-year, consistent employment history. “Consistent” means both working in the same line of work, and without gaps of unemployment. Exceptions can be made if there are gaps in employment, but in most cases, a previous 6-month consistent work history prior to buying a home is required.
If you are a college student, intern, or apprentice – the time spent in school or training qualifies as “employment history” in most cases.
The bank will require you to support your work history with 2-years W-2s, 2-years tax returns, 30-days most recent pay stubs, and college degree (if applicable). More importantly, banks will order tax transcripts from the IRS to verify your tax returns and to ensure your taxes are paid. Any outstanding IRS debts may be required to be paid before buying a home. Prior to funding your loan, the bank will contact your employer to confirm that you are currently employed. Mortgage Pre-Approval Checklist.
Supporting Your “Qualifying” Income
Although you earn an annual gross income, that isn’t necessarily your “qualifying income”. If you work overtime, receive bonuses or are self-employed, the bank will require you to support a consistent history of that additional income in order to use it a “qualifying income”. You will need to provide your most recent paystubs for the past month, and the bank will conduct a Verification of Employment with your employer and breakdown your income over the past year.
Cash To Close – Proof of Down Payment
Banks will require you to prove that you have money in your checking, savings, 401k, or investment account to pay for your down payment and closing costs. In many situations today, the seller is paying the borrower’s closing costs, so the only remaining funds to close is the down payment.
Down payment money must be verified – You may receive gift funds to purchase a home, but either way, you must properly support and provide a paper trail of where those funds originated.
Establishing A Budget
In some cases, a bank will approve you for a mortgage in an amount higher than you wish to afford. A professional mortgage advisor will conduct a pre-mortgage credit analysis to help you determine a mortgage and financial budget designed to helping you pay-off your debt and eventually your mortgage early saving you thousands of dollars in interest paid. We value the opportunity to review and establish a budget for you – The Real Truth About Mortgages – click here for an example of how we help our clients budget and pay-off their mortgage early.
Choosing The Right Real Estate Agent
I highly recommend that you not only work with a real estate professional that knows the San Diego area you want to live in, but more importantly, work with a real estate professional that sells real estate 40 hours/week. You would never visit a doctor that practiced medicine on the side, so why make the largest financial decision of your life with a part-time real estate agent? I work with some of North County's finest real estate professionals, and would be happy to refer an agent to you.
Submit Formal Loan Pre-Approval
It is important that you get pre-approved for a home loan from a local Mortgage Loan Originator. Make sure they are licensed with the State of California and have a valid/active Nationwide Mortgage Licensing System & Registry License number. Local Mortgage Loan Originators are held to a higher standard than bank employees and will be there for you every step of the way, even at the closing table! Click Here If you would like us to help you with getting pre-approved.