Science of Home Loan Approval
Over the last twelve years I’ve had many a discussion with both the seasoned home buyer as well as the first time home buyer. More often than not it comes down to the borrower’s (buyer’s) perception of what it takes in their mind to become approved for a home loan. Because there is constant movement on our side of lending, even the seasoned home buyer doesn’t always fully know what they will need. So in hopes that I can shed some light on what it takes, let me lay out a few simple guidelines or provide a roadmap to help anyone thinking of buying a new home or even refinancing.
Credit: We all know this to be a sensitive subject right? Well it is. Simply put, the higher your credit score the better your rate and the more options you might have available to you. However, that is not always the case as life can throw us some very frustrating financial curves. Did you know that we can get borrowers approved all the way down to at 620 for conventional loans and 580 for FHA? There are certainly restrictions that may apply with lower credit scores. But it is certainly attainable if you have a little more money to put down. Another common occurrence is way too many try to correct their credit on the fly just as they are trying to purchase or refinance. I guess it’s common and maybe people just do not consider because they do not work in this industry. This is perfectly normal. My professional suggestion? Don’t do this. It creates way too much stress when buying a home is a time sensitive project. What can take just an instant in creating bad marks on one’s credit can take possibly up to three months or longer to correct. If you are disputing items on your credit, then know that they will need to be fully resolved or removed by you before you can move forward with a loan approval. If an underwriter sees the words on your report such as, “consumer disputing or dispute” it’s a dead deal until resolved. It’s always a good thing to get a consultation from someone like myself or any loan consultant who can go over your credit with you first to see if it’s clear to go to the next step. If something does need to be resolved, it may not be what you want to hear but trust me, you will have saved yourself much heartache trying to resolve it in a 30 day window.
Income: Yes money does make the world go round – At least in our world it does. And so it does in obtaining a home loan approval. The most common type of income is work income that is documented through various forms such as a W2, paystubs and bank statements. If you’re self Employed, be prepared to show at least two years filed tax returns. You may even need to show your corporate returns as well depending on the situation. We might also be able to use income from court documented child support, social security and other government issued retirement funds. And of course rental income. In order to apply these sorts of income, certain restrictions may apply. In a nutshell we are going to take your documented total gross monthly income and minimum monthly debt (only debt showing on credit report) and your projected new mortgage payment to see if your ratios qualify.
Employment: This is what will justify your income. A lot of people simply think with a very stunning credit score and a big down payment that they can qualify without a strong employment history. Wrong. Although great credit and a sizeable down payment are very commendable, it can and will leave one just short of approval until they have a minimum of at least two years in the same line of work. It does not need to be at the same job. Just the same line of work. The only exception to the two year guideline would be someone who just graduated school with proof of degree or certificate at a vocational school. Here’s another tip: If you flip from being a W2 / salaried employee and planning on becoming self employed, then you may want to wait and buy your home first. If not, then you will need to wait a full two years now as a self employed borrower – even if it is in the same industry. Or if you have a ten year history but you have employment gaps, be prepared to give a strong letter of explanation regarding those gaps. Underwriters want to see consistency and hopefully longevity and likeliness of repayment.
Of course there are other potential obstacles such as negotiating with the seller and obtaining a favorable appraisal when it gets to that point. These are things that you or I have no control over. Hopefully, you will have found a very good realtor that can help you avoid any potential pitfalls on the real estate side. If you don’t, give me a call and I can help put you in touch with some good ones. We work with many great realtors throughout Tampa and the surrounding areas. Bottom Line – getting approved for a home loan does not have to be difficult. Keep your time flexible and keep your goals realistic. Sometimes borrowers want to have a closing when they have time off or cut our time to get things done efficiently by setting their own ideals. While we will always strive to meet your goals, it always comes down to how fast everything comes together and the closing can be set. But sometimes it is and can feel like a science project. If one little ingredient is off or left out, it can create discord and a very unsavory experience. So give me a call when ready and I or someone on our staff will help guide you through to a happy and successful closing.
Green House Mortgage is a full service home loan origination company in Tampa, FL and servicing the state throughout. If you have any questions or concerns with the article or simply need mortgage advice please call 813-732-3155 or email us at info@ghmortgage.com. We are dedicated to giving you the best mortgage consultation available. Green House Mortgage – It Pays to Go Green!
