How to get a mortgage loan: Mortgage guide
Commentary: For most of us, real estate is one of the largest investment we make. It is my goal to provide you with a simple step by step guide to walk you through the mortgage process. We also want to share insights on how and where you can identify the best terms of financing form all the national lenders.
Whether you are refinancing or purchasing a home, having a good understanding of the process and the steps that you and the lender go through will remove any confusion and hopefully keep you at ease and confident in moving forward.
Getting straight sound advice that puts your interest above any one banks matters most here. So lets dive in.
Lenders 3 Main Factors for Mortgage Approvals
When it comes to getting loans approved, mortgage lenders base most all loan approvals off your Credit Rating, Income/Debts, & Property Type. These are the core areas lenders will consider to insure they meet guidelines.
Of course banks love to make loans, but they want the loan to be risk free for you and them. So lets take a quick look at each item.
1. Credit Score & History
Credit scores are calculated by the 3 credit bureaus to determine an overall assessment on your ability to manage your money, and pay your bills. From a mortgage lenders point of view, the higher the credit score, the less of a chance of a slow pay account.
Higher credit score come with small little perks in interest rates savings and underwriting exceptions. Lower credit scores, suggest to the lender there is a higher probability of a future slow pay account. The general acceptance for loan approvals are identified below.
Minimum Credit Scores FHA, VA, USDA Conventional Mortgages:
| Loan Type | Min Score | Bankruptcy ch.7 |
| Federal Housing Admin | 580 | 2 years old |
| Unites States Rural Development | 600 | 3 years old |
| Veterans Administration | 580 | 2 years old |
| Conventional Mortgage | 620 | 4 years old |
2. Income and Debts (monthly bills)
The amount of income you make is compared to the amount of monthly payments you will have with the new loan in question. This is a protective measure to insure you will be able to afford to make monthly payments without any financial stress. This is known as Debt to Income Ration (DTI).
There are two debt to income ratio all mortgage lenders use. To calculate these rates lenders will take your the total of all your monthly debt payments like housing, credit cards, student loans and divide by your gross monthly income.
In review of your income, most guidelines use a 2 years back, 3 years forward rule. Simply said, they will look at your earnings over the last two years and any other income aside of work based earnings, like child support, pensions, social security they will verify that it will continue for more a minimum of 3 years moving forward.
Front Debt To Income= Primary Housing Expense only/ Gross Monthly Income
Back Debt To Income= Primary Housing Expense + Monthly Bills/ Gross Monthly Income
For the most part your Back Debt to Income Ratio should not exceed 50%, however, this depends on the loan program that is used for qualification.
In addition, some lenders are a little more forgiving than others. That is why we recommend that you consider seeking a mortgage loan approval from a company like ours who originates, process and closes lenders with most all national lenders. When one lender says no, we often have another lender that says yes.
Important Qualifying Tips: Any installment loan that has 10 payments or less, should not be counted in the above Debt to income ratios. Any non-taxable income will be increased by by 20% as the debt to income rations use gross income. This means if you receive $1,000.00 in child support, lenders will use $ 1,200.00 as your income for these monies.
3. Property Type & Purpose of Ownership
Based upon which type of property you have or are considering, will determine some typical industry standard guidelines. For example, mobile home properties have a tendency to decrease in value over time; therefore, most all lenders will be a bit more restricted in regards to how much they will lend you versus how much more they want in a down payment or to hold in equity.
Property type risk factors increase respectively from Single Family Residential Homes, then Condominiums, then Manufactured Housing, then Mobile Homes. Therefore, the amount the bank will loan you versus the property value (loan to value), will decrease a little bit the farther you move down the list.
The other deciding factor as to the percentage they will loan also known as Loan To Value (LTV), is the purpose of the home you are buying. If you think in terms of risk, the last home you will let go off is the one you actually live in, this is known as your primary residence.
If you have a second home, say a vacation home, then the banks will be a little more restrictive in the amount they will lend. Last, if you are buying an investment home, banks will apply additional restrictions on the maximum amount they will lend due to the elevated risk.
In summary, these are the basic factors considered for loan approval. Please keep in mind many lenders have deviations, so if you have any approval problems, or do not like the terms we would suggest you consider a lender that represents multiple lenders underwriting guidelines to insure the best lending terms, rates, and lowest fees.
What Are The Required Documents Needed to get a Mortgage Loan Approval?
The loan application to closing on average takes approximately 20 days from the day you send them all of the required documents identified below. In best case scenarios, it is to your advantage to get them documents as soon as you can to avoid loosing an interest rate locks.
Borrower Income & Asset Documents:
- 1 Month Most Recent Pay Stubs for each employed borrower.
- Last 2 years IRS Tax Returns and/or W2's for each borrower.
- If Self Employed, Last two years IRS Tax Returns, plus a Year To Date Profit & Loss Statement
- Any Pensions Documents
- Social Security Awards Letter
- Divorce Decree if Child Support or alimony is used.
- Drivers License & Social Security Card.
- 2 Months Bank Statements (only if purchase) to verify down payment monies
NOTE: Transmits these documents only through a verified secure email, where you have tested and confirmed for sure email address is correct, or best to upload right into the lender website.
How to get Pre-Approved for Purchase or Refinance:
1. Apply online (with or without credit being pulled).
In our world, we feel like the fun part for you is applying online. You want to know why, I am guessing, right? Our system uses several well known national lenders, and the rates they provide us are absolutely lower than what they give there clients if you call them directly. Its like airline tickets, why is it re-sellers have lower fares then if you call the airline direct? Its because we do all the work and pass the savings on to you. They have no cost just a happy approved homeowner.
2. Compare, Select Lowest Rate/Cost Loan Online from various lenders.
Within 3 minutes, you will see all the loan options with the lowest interest rate and closing cost showing first. In this loan options result page, you will see all the details for purchase and refinance. This the most transparent, upfront show you everything loan pre approval, loan comparison engine that insures you maximize your savings.
3. Upload Required Documents.
After you selected your favored loan, simply proceed to the next screen and you can upload what ever documents are requested from above. On this screen, the documents requested is automated based upon your information you provided.
4. Verify Final Underwriting Approval
It is very common once your loan is submitted, for the underwriter to request clarification and or any additional documents or letters of explanation.
In most cases, this is not an underwriter arbitrarily and randomly asking for items. These underwriters must follow not only bank guidelines, but also the guidelines of Fannie Mae and Freddie Mac.
These are the quasi government sponsored agencies that act as a clearing house for all lenders.
5. Schedule Closing
Once all the conditions are cleared your loan is now what we call (CTC) clear to close. Once you receive the clear to close, lenders will by law send you a final numeric summary of every fee regardless of if the seller is paying it, the lender is paying or it is a charge to you the borrower.
This must be reviewed and signed in order to close 3 days after signing. A good lender will walk you through the figures and verify and cross check for accuracy. Given computing power and automation, only on a very very rare occasion is there any error.
6. Attend Closing
Going to closing whether it is at your home for a refinance or a title attorney's office for a purchase loan, should be pretty simple by now.
At this point you have been provided a Closing Disclosure, which itemizes everything. All borrowers must be present and if you are married, but your spouse is not on the loan, he/she will still have to attend if the property is your primary residence or second home in all most all cases because of marital asset laws.
You can request t get a Special Power of Attorney if your spouse can not attend but this will have to be pre-arranged and signed by your spouse with notary and submitted prior to closing.
The Final Summary: Steps to getting a mortgage loan
Obtaining a mortgage for refinancing or purchasing a home starts with submitting an online mortgage application and taking advantage of an instant online preapproval process that puts you in the know, within the first 3 minutes.
This is because our proprietary system, calculates rates, closing cost, loan approvals from many lenders and finds the best loan approval, with the lowest rate and closing cost.
All you have to do after identifying the best loan (which or system will show you the best rate and loan) is to upload your documents, await final loan approval and proceed to closing.
Our agents are always available, for pressure free information and insight. If you have questions we have answers. We are a multi lender, well versed mortgage lender agent, lender broker, lending institution that wants nothing more than to simply mortgage lending for you.
Best Regards and Happy Home Shopping or Refinancing
James J. Hammond
