What does it take to get approved for a home mortgage and how can you be sure the process is fast and as easy as possible?
It sure seems that some people get approved for their home loan mortgages within the day, while others fight and struggle, run around trying to get the proper documents, fax and courier all types of legal disclosure paperwork and just have a heck of a time with it!
In truth, often the hold up that some experience has more to do with a poor fit – between lender and borrower. Every lender has a set of criteria of their best-case consumer. Any deviation from that ‘best-case’ and you’ll be in the paperwork run-around.
Although the criteria is not always set in stone, a loan application officer cannot stray too far from the guidelines without requiring more documentation from you. If this starts happening to you, you’d likely be better off researching a different lender – one that is more suitable to your lifestyle, income, needs and terms.
Here’s what lenders really need when they’re processing your home mortgage request.
Believe or not, all lenders have a home mortgage applicant scoring system that they use to measure you by. Applicants should at best present themselves as creditworthy and have adequate documented records.
If you lack any of the supporting documents below when applying for a home loan mortgage over-compensate to the lender by providing other financial documents to prove yourself financially responsible (i.e., payments receipts of child custody payments, utility or phone bills, car insurance payments, etc. will all assist in the delivery of credit worthiness.
Okay, so here’s the five areas you’ll be asked to ‘prove’ yourself in:
1. Employment History – Employment records (or past Income Tax returns for home business owners) for not less than 2 consecutive years. This displays that you have the capability to be sustained in a permanent position and are stable. Lenders look for stability and consistency – your employment history is a good indication of each.
2. Credit History – Another aspect of your financial situation under scrutiny will be your short-term debt – loans and credit card debt. Don’t worry, there’s nothing wrong with having recurring debt on credit cards, because the history of on-time payments towards that debt is what’s really scrutinized. Tip: At least six months before applying for a loan, clean up your short term debt or at least ensure that all payments are made on time during that period.
3. Other Outstanding Liabilities – The size of your combined family income equates to the amount of personal liability you can easily support. For this reason lenders stipulate that anyone’s total monthly payments for current liabilities should not exceed about 42% of their monthly earnings. Liabilities include credit card debt, car loans, existing student loans, other mortgages and/or child support payments. Therefore, in order to qualify for your home mortgage, you need to reduce your monthly liability payments to a percentage less than 42 (varies by lender).
4. Cash and Asset Reserves – You’ll also need to provide proof to the lender on the amount of cash and liquid assets that you possess when you apply for your home mortgage. Have this ready ahead of time and you’ll be doing less legwork when the closing date approaches.
5. Existing Housing Payments – Rent Receipts – If you already have rental payments budgeted into your personal finances you’ll also want that credit report to be spotless. It does not look good to a mortgage lender to see that you have been late on your rent payments for the past year. A spotless record displays that your priorities are in order regarding payments and housing.