Mortgage Matters: Is An Approval.... An Approval?
Historically low mortgage interest rates have continued to spur home sales in Hampton Roads. If you’ve been thinking about buying a new house, or perhaps your first house, this may be the time to commit and jump into the marketplace. The key, however, is gaining loan approval.
Just when you thought the “F” word was a four letter word, when applying for a mortgage loan it is a five-letter word spelling “FRAUD.” Because of the sins of the housing industry’s past, along with what appears to be a constant mountain of foreclosures, every lender in the nation at every level of their company is charged today with preventing mortgage fraud. If you are a previous homebuyer, a few years back you basically went into the lenders’ office and breathed on a mirror. If it fogged, your loan was approved.
Being facetious here, however, the reality was your credit score was the primary driver to gaining a loan approval. Make no mistake, this article is not meant to scare you; however, I am here to tell you, with the new documentation standards, the mortgage industry has reverted to the lending standards where full file documentation prevails.
For those of us who remember back then, there were no credit scores, simply obtaining a credit report took three to five business days, and people actually came in with their documentation. The Hampton Roads area is an unusual market. Because of this area’s high military population, we have a higher concentration of veteran borrowers. Those loans require greater documentation for approval.
Today’s selling environment is far more complicated than in the recent past. Due to past market values declining, in many cases the sales contract is negotiated between the buyer, seller and so often the seller’s lender, as a short sale. A short sale is when there’s a disparity between the loan balance and sales price and or market value. The seller does not have the balance of funds, hence the short sale where the lender forgives the remaining balance as a means to settling the sale.
So, are you ready financially to buy a house? Where should you start? Do you know your credit score? Do you know which of the three scores the lender uses in decisioning the loan? Are you employed full time or are you working 40 hours in the same line of work or for a temporary service without benefits? Do you have a weekend side business? And so begins the lender delving into your finances.
Here’s a quick checklist that can aid in moving you toward the right decision:
• Do you have a steady “FULL TIME” source of income?
• Have you been employed on a regular basis for the last two to three years?
• Is your current income reliable?
• Do you have a good credit history?
• Do you have few outstanding long-term debts, such as car payments?
• Do you have any money saved for a down payment?
• Are you separated or divorced? Do you have joint debts that are still part of your credit history?
If you can answer “yes” to most of the questions, you’re off to a great start to qualify for a mortgage. The next step is to determine how much of a loan you can afford. Here’s when you need to talk to a mortgage lender and determine which home loan program is best for your situation. The loans for those with blemished credit are a thing of the past. While there are a few lenders out there who claim to have those specialized loan products, the reality is they are making an attempt at providing a credit repair service.
Charlie Laurens, managing broker of the Perfecthouse Team, said that the clients who have attempted today’s version of a blemished credit loan usually end up an emotional wreck after 45 to 60 days if not approved.
A word of caution: Pre-qualification is a more informal way to see how much you may be able to borrow but does not guarantee loan approval. You can be “pre-qualified” over the phone with no paperwork by telling a lender your income, your long-term debts and how large a down payment, if any, you can afford. Loan approval is a lender’s actual commitment to lend to you once everything is verified.
Have I scared you yet? What can you do to ensure a successful loan approval?
Gather your last two years of tax returns, including federal pages and schedules.
If retired with a pension or Social Security, your annual retirement statement.
Two months’ bank and investment statements, all pages. Your statement will reflect pages one of whatever. Even if the last page is blank, it is still considered part of the statement.
If separated or divorced, the lender will need a full copy of your separation agreement or divorce decree and any supplemental statements.
Are there any out of the ordinary deductions taken out of your paycheck or Leave and Earnings statement? If so, complete documentation is required.
Are there any out of the ordinary deposits on your banking or investment statements? If so, be prepared to document the reasoning.
Your credit, is there anything the lender will uncover? Believe me, they will uncover everything.
Now you might finally be ready for loan processing; however, be ready for your own personal foundation earthquake. Immediately upon submitting your application, the lender will undoubtedly order a transcript of your most recent tax returns from the Internal Revenue Service. What I can tell you is that by today’s underwriting standards, I have seen many loans not immediately approved because of variances between what was filed and what was submitted at application.
As your loan process moves forward, you may also want to consider locking your interest rate on the loan. By locking in the rate, you can ensure that the good deal you spent time finding is what you get. A lock is an agreement between the borrower and the lender that specifies the number of days for which a loan’s interest rate and points are guaranteed. If mortgage interest rates rise during that period, the lender must honor the committed rate.
Steve Rockefeller, NMLS ID 659493, is a 24-year-mortgage lending professional. He is a past president of the Tidewater Mortgage Bankers and the Virginia Mortgage Bankers associations. Rockefeller can be reached at 757-301-9776 or [email protected]. This column is relative to the mortgage industry and the opinion of Rockefeller and does not reflect the opinion of George Mason Mortgage LLC.