Things To Do During The Mortgage Application Process
This guide covers things to do during the mortgage application process. Homebuyers who have decided that they are going to be purchasing a home in the very near future, there are certain things to do prior to the mortgage application process. Some of the things to prior to the mortgage application process is to get ready prior to applying for a mortgage loan so things can go smoothly. One of the most important things to consider is to see how much house you can afford.
Steps To Follow During Mortgage Application Process
During the mortgage application process, here are some crucial steps to follow:
- Check Your Credit Score: Ensure it accurately reflects your financial history, as it will significantly influence loan terms.
- Gather Necessary Documentation: This typically includes tax returns, pay stubs, bank statements, and other financial documents.
- Stay Consistent with Your Employment: Avoid changing jobs if possible, as lenders value stability.
- Avoid New Debt: New loans or credit card applications can negatively impact your credit score.
- Respond Promptly to Lender Requests: Quick responses can help speed up the process.
- Refrain from Large Purchases: Large expenditures can alter your debt-to-income ratio, affecting loan approval.
- Maintain Your Current Credit Activities: Continue using your usual credit, but avoid late payments.
In the following paragraphs, we will walk through the steps of the mortgage application process which will lead you to a smooth path and improve your chances of approval. Speak With Our Loan Officer for approval of you mortgage loan
Overview of the Mortgage Application Process
The mortgage application process typically involves several steps for borrowers seeking a home loan. In the following paragraphs, we will cover an overview of the common stages in the mortgage application process.
Pre-Approval Mortgage Application Process
Borrowers provide basic financial information to a lender, including income, employment, assets, and credit history. The lender performs an initial evaluation and provides a pre-approval letter, which outlines the maximum loan amount the borrower may qualify for. A pre-approval letter demonstrates the borrower’s creditworthiness to home sellers and real estate agents.
Formal Mortgage Application
Once the borrower finds a property, they complete a full mortgage application with the chosen lender. This application requires detailed information about the borrower’s finances, employment history, and the property being purchased.
Document Submission
The borrower must provide various documents to the lender, including pay stubs, tax returns, bank statements, and proof of assets and income. Depending on the borrower’s circumstances, the lender may require additional documentation (e.g., self-employment income, gift funds, etc.).
Property Appraisal
The lender orders an appraisal to determine the fair market value of the property being purchased. The appraised value is crucial as it affects the loan amount and loan-to-value ratio.
Underwriting
Underwriting involves thoroughly reviewing the borrower’s credit history, income, assets, and property appraisal. The underwriter assesses the borrower’s ability to repay the loan and ensures that the loan meets the lender’s guidelines.
Loan Approval (or Denial)
If the underwriting process is successful, the loan is approved, and the lender issues a commitment letter outlining the terms and conditions of the loan. If the loan is denied, the lender explains, the borrower may have the opportunity to address any issues or seek alternative lenders.
Closing
Once approved, the borrower proceeds to close, signing the final loan documents and transferring the down payment and closing costs. The lender disburses the funds to the seller, and the borrower officially becomes the homeowner. Throughout the process, borrowers should be prepared to provide prompt responses and additional documentation as requested by the lender. Clear communication and cooperation between the borrower, lender, and other parties (e.g., real estate agents and title companies) can help ensure a smooth mortgage application process.
How Much Home Can You Afford?
Homebuyers should start shopping for a loan officer and lender. Borrowers should contact a mortgage lender, or several, to see what they qualify for. Just because a mortgage lender gives the maximum amount borrowers qualify for does not mean that is their budget. The mortgage loan originator will give borrowers a maximum housing budget and it is up to the home buyer whether they feel comfortable. Remember that housing expense is not just mortgage payment. Homebuyers need to consider reserves in the event if a furnace, air conditioning unit or appliances break down where is the replacement money going to come from.
Things To Avoid During The Mortgage Application Process
There are certain things to do prior to the mortgage application process: First, do everything possible to maximize credit scores and have a strong credit profile. For example, those who have had prior bad credit and only have one credit card try to get two more secured credit cards to get more credit tradelines and maximize credit scores. Do not max out credit limit. Always have a credit balance below the 10% of the credit limit. Those who have high balances on their credit cards, pay them down so the balance is less than 10% of the credit limit. By doing so, credit scores will increase. Get a copy of the credit report. Consumers can get one free credit report from each of the three major credit bureaus each year:
- Experian
- Transunion
- Equifax
Consumers can get a free credit report once a year by requesting it from www.annualcreditreport.com. Upon getting a credit report, check to see for any errors. Click here to find out how much you can afford for your home
Things To Avoid Prior To Mortgage Application Process
There are several things the borrower needs to avoid prior to applying for the mortgage application. One of the most negative things to avoid doing is having creditors pull credit. Each hard pull credit inquiry can drop your credit scores by 5 or more points. Another thing to avoid is getting new credit, especially an automobile loan. The average automobile loan’s monthly payment is $400 per month. By having an additional $400 per month, the monthly payment will decrease home buying power by $100,000. A $100,000 mortgage is equivalent to a $400 monthly payment. Many folks who recently bought an automobile get forced in buying a smaller home because of the auto loan.
Never Close Out Active Credit Tradelines During Mortgage Application Process
Another thing to do during the mortgage application process is to close out an active credit account. Closing out a seasoned credit card account will definitely hurt credit scores. Credit bureaus look at the length of credit history and the available credit limit on existing credit account in calculating credit scores. By canceling or closing out an active credit account with a zero balance that they have had for years, they are cheating themselves from an optimum credit history account plus credit scores will drop.
Avoid Overdrafts in Bank Statements During Mortgage Application Process
Always have overdraft protection on all of the checking accounts. Many lenders will deny a mortgage application where the borrower had overdrafts on their checking account. Some mortgage lenders do not even accept a $5 dollar overdraft in the past 12 months. Do not play musical bank accounts and open up new bank accounts and closeout existing bank accounts. Make sure all deposits over $200 are sourced and all withdrawals are documented. Have a separate savings account where the down payment of new home purchase is documented and seasoned? Document everything because mortgage lenders will ask for any irregular deposits or withdrawals within the past 60 days of the mortgage application process.
Mattress Money, Cash, and Undocumented Funds
Borrowers who have mattress money, cash, or undocumented funds, deposit it to a bank account 60 days prior to the mortgage application process. Mortgage lenders only require two months of bank statements. Borrowers can have cash or undocumented funds deposited in the bank account that has been seasoned more than 60 days. Any deposits that are within the 60-day window need to be sourced and documented.
Qualifying For a Mortgage With a Lender With No Overlays
FHA is the most popular loan program for first-time homebuyers, those with higher debt to income ratios, and buyers with less than perfect credit. Remember that not all FHA Lenders are created equally. Just because an FHA Lender may tell a borrower they do not qualify that does not mean that the borrower does not qualify with other Lenders. Gustan Cho Associates is a five-star national mortgage company with no lender overlays on government and conventional loans. Over 80% of our borrowers either gotten a last-minute mortgage denial by other lenders or could not qualify with other lenders due to their mortgage overlays. Borrowers who need to qualify with a direct lender with no overlays on government and/or conventional loans, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
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