Wednesday, April 17, 2024

When Do You Apply For A Mortgage Loan

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When you apply for a mortgage loan, you will be asked to complete a Uniform Residential Loan Application . As part of the mortgage application process, youll also be asked to submit additional documents that will help your lender verify your income and assets.

The good news is that you dont need anything on-hand when you talk to the lender the first time. All you need is a general idea of how much you make, how much you have in the bank, and a few more personal details.

From there, its the loan officers job to send you a personalized list of items needed to process your application.

Still, if youd like some idea of what things you might need, read on.

The Mortgage Agreement In Principle

Obviously, you cant complete the mortgage process until you have found a property to buy. Not least because the lender will need to do a valuation survey to ensure it is a good investment for them. All lenders will give you an indication of how much they are prepared to lend you and on what terms, given your circumstances.

Most lenders will go further and offer you a mortgage in principle after you have supplied them with the evidence they need of income etc. They offer this in the hope that you will use them as your lender once you find the property you want to buy and so you have evidence of having funds in place when you make an offer on a property.

To get your mortgage in principle you should:

Proof Of Assets And Liabilities

Your lender might ask you for some or all of the following when they verify your assets:

  • Up to 60 days worth of account statements that confirm the assets in your checking and savings accounts
  • The most recent statement from your retirement or investment account
  • Documents for the sale of any assets you got rid of before you applied, such as a copy of the title transfer if you sold a car
  • Proof and verification of any gift funds deposited into your account within the last 2 months

Your lender may also ask you for supplemental information on any debts you owe, like a student loan or an auto loan. Cooperation with your lender only makes the process easier, so be sure to provide any requested information as soon as possible.

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Advantages Of Being Conditionally Approved

You likely have been told to get preapproved before house hunting, but when you have conditional approval, you will have a slight edge in terms of bargaining. When you have conditional approval and enter into a bidding war, you will be considered more seriously than a candidate who lacks this type of approval.

For those who are looking to build a home, a conditional approval may help them move through the process faster. Builders dont want to commit to the expenses of construction without the guarantee that you are going to be approved.

Conditional approval can also help with getting you to close quicker. Because underwriting can take some time, having much of it done before you start house hunting or building makes the process go faster. The documents have already been approved, so you will be ready to close when the time comes.

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Can You Be Denied After A Conditional Approval

Clients with a conditional approval for a home loan are at risk for denial if they fail to meet any of the conditions laid out by the lender.

Here are a few reasons why a client might be denied:

  • The underwriter is unable to verify the data provided by the client.
  • The home the client is trying to purchase has an unexpected lien.
  • The client has a judgment on their record.
  • The home inspection or home appraisal came in with unexpected issues.
  • The client experienced a decrease in income.
  • The client had negative entries on their credit report.

Your loan may also be denied if any of the additional information you submit doesnt match up with what the lender was given at the time of the initial mortgage approval. If you have a loss of income or buy a new car at the same time youre trying to get your mortgage, this could throw off your DTI and cause the lender to deny your loan on the basis that its now too high.

The Bottom Line On Conditional Mortgage Approval

Conditional loan approval on a mortgage makes you a stronger buyer. And it may be a requirement in some situations, like new construction.

Even better, getting conditional approval for a home loan doesnt require much extra work. For any mortgage to close, youll need to provide the right documentation to your lender and have that loan go through underwriting. Conditional mortgage approval simply involves getting a letter proving this part of the process is complete.

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How Long Does It Take To Get Approved For A Mortgage

Terri Williams is an expert in mortgages, real estate, and home buying. As a journalist she’s covered the “homes” corner of personal finance for more than a decade, with bylines in scores of publications, including, Bob Vila, Yahoo, Time/Next Advisor, The San Francisco Chronicle, Real Homes, and Apartment Therapy.

Buying a home is an exciting and memorable time for most people. However, the actual mortgage approval process can quickly dampen the mood, and it often proves to be quite stressful for anxious buyers. But there are things you can do to actually speed up the timelineor at least not delay it.

Well look at the mortgage approval process to help you better understand the process and how you can work to move it along

Section Ii: Property Information And Purpose Of Loan

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For the second section of the mortgage application, youll need to be prepared with the details of the property, including the address, type of property , the year it was built and the number of units if its a multi-unit property.

This section also asks the purpose of the loan and whether the property will be a primary residence, secondary residence or an investment. Depending on the purpose of the loan, other information about the property may be required.

Finally, youll be asked to define who will hold the title and the source of the down payment.

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Dangers In Buying High Ticket Items During The Mortgage Process

Many furniture and/or appliance stores may offer zero interest and no payments for one year if you purchase at their stores. However, this is not good when you are going through the mortgage process. The mortgage underwriter will pull credit throughout the mortgage process. Just before issuing a clear to close, the mortgage underwriter will do a soft credit pull. Any credit inquiries will show up on your credit report. The mortgage underwriter will want to know about the credit inquiry, the outcome of the credit inquiry how much debt you have incurred, and what the monthly payment is.

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When Your Credit Score Is Ready

Any type of loan brings with it some amount of risk, for you as the borrower and for lenders. One way lenders can protect themselves is by offering the best terms to people who have the highest credit scores. If a lender determines that a potential borrowers credit history isnt good enough, they may reject a persons mortgage application entirely.

As a general rule, the higher your credit score, the better your chances of being approved for a mortgage. Youll also get a lower mortgage rate if you have a very good or excellent score. When determining your eligibility, most lenders use your FICO score, which is pulled from each one of the three credit reporting agencies. FICO scores range from 300 to 850, and the closer you are to 850, the better your score. Scores above 800 are excellent or exceptional while scores between 740 and 799 are very good. Any score below 580 is considered poor. If your score is in that range, it can be challenging to get any type of loan, let alone a mortgage.

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Then Get Things In Order

Once youve been keeping regular tabs on your credit report, youll be able to see how youre doing. Dispute any inaccuracies with the 3 credit bureaus and get everything cleared up. If your debt-to-credit ratio is too high, monitoring your score over time will show you how your score might change. If you see accounts that you didnt open or addresses that arent yours, take immediate steps to investigate what could be identity fraud.

How Does A Mortgage Loan Work

Things To Consider Before You Apply For A Personal Loan

When you get a mortgage, your lender gives you a set amount of money to buy the home. You agree to pay back your loan with interest over a period of several years. You dont fully own the home until the mortgage is paid off.

The interest rate is determined by two things: current market rates and the level of risk the lender takes to lend you money. You cant control current market rates, but you can have some control over how the lender views you as a borrower. The higher your credit score and the fewer red flags you have on your credit report, the more youll look like a responsible lender. In the same sense, the lower your DTI, the more money youll have available to make your mortgage payment. These all show the lender you are less of a risk, which will benefit you by lowering your interest rate.

The amount of money you can borrow will depend on what you can reasonably afford and, most importantly, the fair market value of the home, determined through an appraisal. This is important because the lender cannot lend an amount higher than the appraised value of the home.

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Mortgage Credit Insurance Other Services

Mortgage credit insurance comes into play if you are faced with circumstances that prevent you from repaying your debt – for instance, in the case of death, illness or job loss.

Lenders can require that you buy a mortgage credit policy.

They may propose a policy to you in a package with your mortgage credit agreement but this cannot be made a condition for you to obtain the mortgage credit.

You are always free to look for better conditions from other insurers, as long as the level of guarantee offered by different policies is equivalent to what is required by the lender.

Lenders can, however, oblige you to open a payment or savings account with them, from which you will repay the loan.

Dont Take On Any New Debts

You may have heard that you shouldnt finance an expensive item while applying for a mortgage.

But most people dont know its a mistake to buy something with big payments even years before applying for a new loan.

Thats because mortgage underwriters look at your debttoincome ratio meaning the amount you pay in monthly debts compared to your total income.

The more you owe each month for items like car payments and loans, the less you have left over each month for mortgage payments. This can seriously limit the size of the mortgage youre able to qualify for.

For example, take a scenario with two different buyers they earn equal income, but one has a large car payment and the other doesnt.

$300,000 $390,000

In this scenario, both buyers qualify for a 36% debttoincome ratio. But for Buyer 1, much of that monthly allowance is taken up by a $500 monthly car payment.

As a result, Buyer 1 has less wiggle room for a mortgage payment and ends up qualifying for a home loan worth almost $100,000 less.

Thats a big deal: $100,000 can be the difference between buying a house you really want and having to settle for a justokay house maybe one that needs some work or isnt in the location you wanted.

So if home buying is in your future, examine your priorities. Consider a car with inexpensive payments or one you can pay off quickly.

And try to avoid making other bigticket purchases that could compromise your home buying power.

Keep credit card balances low, too

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Don’t Close Major Credit Card Accounts

Problem: Logic would seem to be on the side of lowering credit card debt and eliminating unnecessary or unused lines of credit. However and this is where it can get confusing closing a credit card account might have the opposite effect by doing so, you may increase your ratio.

How does closing a credit card affect your credit score and mortgage application? The percentage of available credit is among the top factors that influence your credit score, and ultimately your future mortgage interest rate. Closing unused credit cards reduces access to credit from your perspective, but in closing an account you will have increased your credit utilization ratio from a lenders point of view – and thats a bad thing.

For example, if you have credit card limits totaling $10,000 and balances of $2,000, your ratio is 20%. If you then close a credit card with a limit of $6,000, you just raised your utilization percentage to 50%. That does not bode well for your credit scores, which could complicate mortgage approval, and/or raise your interest rate.

Closing your oldest major credit card accounts is almost always a BIG mistake before buying a home.

Clear To Close Timeline

What to Do Before You Apply for a Mortgage

How many days before closing do you receive mortgage approval? Clear to close timelines vary by lender and even underwriting team. There are also unique conditions that could extend the clear to close timeline, like irregularities in a loan application or spikes in mortgage team workloads. When lending activity is high in other words, when a lot of people are applying for mortgages and refis it may take underwriters more time to process loans.

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Gather Your Financial Paperwork

Having accurate answers to home loan application questions can prevent surprises once the mortgage process is underway. If you provide the right mortgage documents upfront, youll likely have a smoother mortgage experience.

Heres what youll need:

  • Full name. List your full legal name, and add suffixes in the name field so only your credit information is pulled.
  • Dependents. The definition of dependents varies by loan type. For example, loans guaranteed by the U.S. Department of Veterans Affairs require the ages and number of children in a family.
  • Address history. Youll need to include two years worth of addresses. The lender matches this information to your credit report.
  • Total assets. Collect two months worth of bank and retirement statements. If you have money in a 401 and/or retirement funds, adding those to the mix will strengthen your application.
  • Employment and income information. In addition to pay stubs and W-2s for the last two years, provide the company name, address and phone number for your current employer. Lenders will need the information to verify your employment again before closing.
  • Federal or past-due tax payment plans
  • Business and personal tax returns
  • Cosigned loans

How Do I Apply For A Mortgage

If youre looking to buy your first home, you should ideally start planning months before you apply for your mortgage. This is to ensure your finances are in good order and your is as good as it can be to make a successful mortgage application.

Check out mortgage products and best buys to see how much you can borrow once your deposit amount is considered. Take notice of how the deposit amount influences the loan value and the mortgage rates.

  • When you are looking for a mortgage deal it is easy to simply compare the best interest rates. But, the mortgage fees and costs can make a significant difference to what you end up paying.

Think about using a mortgage broker. Some offer fee free advice and will search all the mortgages on the market to help you find the best deal, so its worth taking advantage of. Ask your current bank or building society what they would offer you. But, do not feel pressured to go with them if they dont offer the best deal. Check to see if your employer provides mortgage deals, as these can provide great rates.

You should shortlist two or three deals that you like the look of, and that seem suitable, and then get a mortgage agreement in principle.

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