What to Know Before Applying for A Mortgage

While there are numerous elements reviewed in order to qualify for a mortgage, the main three are: credit, income, and assets. Here are some expert tips from one of our valued mortgage professionals on how to stack the deck in your favor and ensure you will qualify for the loan you want.

Protect Your Credit

• Your credit score is a key identifier used by lenders to assess the potential risk of a borrower. The lower the score, the greater the risk. And having a higher score will give you access to the best rates available. Just a few points below prime can cause your qualifying rate to increase, and cost you thousands of additional dollars in interest payments.

• Do whatever you can to avoid taking on new or additional tradelines leading up to your application, and through the mortgage process. Your activity is monitored, so taking on unsecured debt, or a new large car payment may lower your score and put you out of qualifying range.

• It’s ok to use credit cards that you already have, as long as you use them sensibly, and keep your balances low (generally under 10% utilization) or paid off completely each month. The point isn’t to have no credit, it’s to have and use it responsibly.

Stabilize Your Income

• Two years of income history will be reviewed during the application process. While W2 employment is generally seen as the most stable, self-employed individuals can absolutely qualify, but are put under additional scrutiny. Underwriting guidelines will look at not only the individual, but the business as well, which can complicate matters a bit more.

• Avoid changing fields of work, or switching to self-employed leading up to a home purchase. It may disqualify you all together.

• Consistent income is key, although variable income is allowed. If not in a salaried position, average history of income can be leveraged to qualify. It depends on the track record, and type of income. 

Maximize Your Assets

• It’s important to have your money seasoned and in a checking or savings account well ahead of time. Underwriters will scrub 2-3 months of bank statements to ensure cash just didn’t pop in your account out of nowhere. Cash is seen as questionable, and may not be considered a viable asset for down payment or closing costs.

• You may also be able to leverage retirement and/or gift funds in certain circumstances. It depends on the loan type, and where the gift is coming from. But the additional capital may allow for a stronger down payment and help win the home.

• Don’t forget about closing costs! In addition to the down payment, closing costs and escrows (for taxes and insurance) will make up your total cash-to-close. It is dependent on purchase price and the property, but these additional costs can add up to anywhere from 2.0% - 2.5% of the purchase price. 

No two borrower profiles are exactly the same, which is why it’s of the utmost importance to work with a mortgage professional who has the flexibility and options that work for you.

Up Next: Check out our Pitfalls to Avoid for First Time Home Buyers >>>>>

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