When preparing to buy a home, it’s natural to be preoccupied with thoughts about your future residence. However, it’s important to not overlook the more technical (read: less exciting) aspects of purchasing a property, such as applying for a mortgage loan. Getting approved for a home loan has always been an involved process, but since the subprime mortgage crisis that preempted the 2008 recession, it has become even more rigorous, so you’ll want to be well-prepared. We asked four Diamond Certified Expert Contributors to give their tips for making the most of a mortgage loan application.
1. Check your credit.
Several factors go into determining what kind of mortgage loan you’ll qualify for, from your employment standing to your debt-to-income ratio. While some of these are more or less fixed (your income, for instance), others can be improved with proactive attention. One of these is your credit score, which is why George L. Duarte of Horizon Financial Associates recommends getting a full credit report long before you apply for a home loan. “To avoid any surprises that could hurt your credit score—and, by extension, your mortgage loan application—pull a credit report early and check to see if there are any issues or errors that need to be addressed.”
Even if you have good credit, it’s not uncommon for a thorough credit report to reveal minor financial issues you didn’t realize you had, such as small collections. By proactively addressing such issues, you can increase your credit score by as much as 50 or 100 points, which can help you get a better loan and a lower interest rate.
2. Find a lender.
Even if you have a great real estate agent, if you don’t have the backing of a lender, your dreams of homeownership won’t become a reality. However, you shouldn’t choose just any lender. Why? As Ken McCoy of Petaluma Home Loans explains, not all loan companies are looking out for your best interests, and some can be downright deceptive. “You need to be aware of the fine print when working with a loan company,” he explains. “As an example, you might see an advertisement for 30-year mortgage rates as low as 2.99 percent. Sounds great, right? However, you’ll notice they didn’t say ‘30-year fixed.’ What they’re actually selling is a 30-year amortized loan that’s only fixed for the first two years, after which the rate could go up significantly. That’s why it’s critical to look closely at what’s being offered, because if it sounds too good to be true, it probably is.”
Real estate broker/agent Mike Young adds that a way to get extra assurance when choosing a lender is to “go local.” “There are a couple of reasons a local lender is better than an online one,” he says. “First, having a lender whose face—or, at the very least, street address—sellers can recognize adds credibility to your offer package. Also, a local lender has a reputation to maintain in the community, whereas a lender based in a far-off location does not, so it brings a lot more accountability.”
3. Be thorough about documentation.
Since the passage of the Dodd-Frank Act in 2010, mortgage lenders are requiring more documentation than ever before, which can create an exhausting exercise for applicants. However, in order to keep the loan process rolling along smoothly, Dan Eichhorn of West-Cal Mortgage says it’s important not to shirk on accuracy. “To avoid delays, make sure you carefully follow your lender’s checklist and try to get 100 percent of those items correct at the beginning.”
Some of the documents you’ll need to provide include W-2 forms from the past two years, paycheck stubs from the past 30 days, your most recent federal tax return, and comprehensive lists of both your assets and debts. If you own a business, you’ll also need to supply profit and loss statements or 1099 forms. Regardless of how much documentation you’re asked to provide, the closer attention you give to accuracy, the more quickly you’ll get approved.