Getting a mortgage can be complicated, so your mortgage lender doesn’t expect you to have all the answers or know everything about the lending process. This is why they provide guidance and offer information on various programs available to you. But although you’re not expected to have an extensive knowledge of mortgages, there are a few things your lender wishes you knew—which can make their job easier and result in a smoother process.
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We can help you qualify for a home loan
If the bank denies your mortgage application, don’t disappear on your lender. You may not qualify for a mortgage today, but with the help of your lender you might qualify in the future.
Underwriters know what to look for when approving a home loan application. And if your application falls short of the bank’s requirements, some mortgage officers can help with credit repair or offer a guide for improving your financial outlook. Speak with the lender to find out what you need to do.
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We need the truth, no matter how ugly it is
A mortgage lender can only help if you’re honest about everything. Holding back information can hurt your chances of qualifying. Some people lie about assets, not realizing that lenders check bank statements.
If you don’t have enough cash, let your mortgage officer know. Some loan programs have lower down payment requirements, and some community banks offer unique programs that require little or no money down. And when discussing your debt and monthly obligations with a lender, don’t hide child support or alimony payments that you make. These payments don’t show up on your credit report, but they do count as debt, which can reduce purchasing power when buying a home. Marylin Lewis of MSN reports that loan processors will contact “courts and lawyers to confirm whether you are married or divorced and if you owe child support, alimony or a court-awarded judgment.”
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You can’t spend your entire paycheck on a mortgage payment
If you’re getting a conventional home loan, your mortgage payment can be no more than 28% of your gross income, and total debt payments including the mortgage cannot exceed 36% of your income.
Some people apply for a mortgage thinking they’ll be able to spend up to 40% to 50% of their gross income on the mortgage payment, but it doesn’t work this way. A lender will not approve a mortgage if the monthly payment takes a big chunk of your income. An overly expensive mortgage payment can complicate your finances. And when your finances are complicated, there’s a greater chance of default. Some home loan programs have higher housing and debt limits. You can get an FHA home loan and spend up to 31% of your gross income on the monthly payment, and your total debts can be as high as 43% of your gross income.
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We can’t approve your loan if you can’t show income
If you are self-employed, your tax returns need to show a sufficient net profit. An excellent tax accountant knows how to find deductions to reduce your income and lower how much you owe in taxes. But unfortunately, what helps you on your taxes doesn’t help when trying to buy a house.
A mortgage lender can add some expenses back to your income, such as depreciation, home office deduction and even mileage. But they can’t add back business expenses like supplies, advertising, insurance, etc. If you’re thinking about buying a house, reduce your number of write-offs for at least two years to show as much income as possible.
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A pre-approval doesn’t guarantee anything
A pre-approval is the first step of buying a house. The lender looks at your credit and income to see if you’re eligible and determines how much you can afford. Just know that a pre-approval doesn’t mean you’re guaranteed a loan, it only means you’re a good candidate. If you make any sudden moves during the pre-approval process such as quitting your job or acquiring new debt, your mortgage lender will have to take a second look at your income to see if you still qualify for the loan. To avoid any possible setbacks, don’t make any changes to your financial picture until after you’ve signed the mortgage papers and receive the keys to your new house.
