Interest rates are on the rise, and they have been for a while. As home values continue to rise, it’s a good time to get into a house before interest rates become a roadblock for homeownership. Especially in San Diego where median home values are around $500K. But did you know that an average of 21% of all mortgage applications across the United States were rejected last year. What would it be like to know what to do to tweak your chances of getting your mortgage approved? Especially before interest rates get too high? In this article, we will share with you essential tips you need to know and implement to get your mortgage request approved, and get you into your new home.
The smartest way to start this process is to get pre-qualified. And the pre-qualification process and mortgage approval itself now happens two different ways. First, there is the traditional way. This is going directly through a lender to get pre-qualified after a few preliminary questions about debt versus income. The traditional way for getting mortgage approval comes with a five page loan application. The lender will pull a credit report and and request documented proof to support income and asset claims. After which, the underwriter verifies everything, and your loan is then approved pending an appraisal request. This process takes about two to four weeks. Sometimes it can take a bit longer based on the closing process, which can take another two weeks.
The second way is growing in popularity. This streamlined version of the traditional pre-qualification and mortgage approval process is done online. This reduces the entire mortgage approval process by about two weeks. With each route, the mortgage application itself usually incurs a fee.
Regardless of which route you take, keep in mind that your income, assets, liabilities and credit score will all play a major role in getting you mortgage approval. If you are going the traditional route, request a copy of the pre-qualification letter to share with your real estate agent. It’s a good idea to also retain a copy of this letter for your records.
Now, the days where if you had a pulse, you could get a home loan are long gone. Remembering that your income, assets, liabilities and credit score are all essential in this process, let’s cover the five key areas of preparation. Consider each of these before you even start the pre-qualification process, so you can increase your chances of getting your mortgage approved.
Sufficient Proof of Repayment Ability
Proof of Employment Income
Proof of Asset Ownership
Submission of Additional Documents Upon Request
Proof of Creditworthiness
This has to do with bank statements showing deposits – or lodgments, tax returns and proof of any other incomes you receive periodically. It’s very important that you’re able to demonstrate your ability to repay your loan, so do your best to be as meticulous as you can stand to be, and be ready to provide this information beforehand to expedite the mortgage approval process.
If you’re self-employed or otherwise not receiving a W-2, or if you’re a business owner, you’ll have to provide proof concerning the registration of your business, tax clearance certificates, and detailed sources of business income such as quarterly statements and investment accounts. If you are employed, all you’ll need in most cases is an employment letter, two years of W-2 statements, and recent ‘year-to-date’ pay stubs. These documents will further help the lender to assess how much you can afford, and having them ready ahead of time will definitely speed up the process and demonstrate your serious level of commitment to the lender.
You won’t be collateralizing other tangible assets, such as commodities or other real estate you may own, because this is about liquidity – Lenders are only interested in financial assets that have a bearing on your ability to get a loan, such as cash held in accounts or stocks and securities that you could quickly sell to raise money. These financial assets are also considered when lenders are assessing your ability to provide a down payment in addition to these serving as proof of your ability to pay a mortgage. If you investments that can prove to both the lender and your real estate agent that you are capable of making any forward payments towards buying the house, that’s fine, but never promise or declare income or money you haven’t yet earned as part of your assets. For instance, if your father has promised to give you $15,000 as a gift towards your mortgage, do not declare that as one of your ownerships if you haven’t already received it – and if you have received it, you’ll need a notarized gift letter to certify that the money is not a loan and that you’re not under any obligation to repay.
On a case-by-case basis, you may be asked to provide additional documents. Usually these are proof of nationality, permits, a driver’s license or any other relevant state identification card – like a military ID. Your social security number will also be requested.Just be very patient and willing to submit anything requested. Your attitude shown during the application process really does go a long way in helping you get your mortgage approval.
It’s no secret that a good credit score will not only take you much closer to your mortgage approval, it also guarantees you a low interest rate. Lenders traditionally prefer applicants with a credit score of 740 or higher. Generally, however, you’ll need a credit score of at least, 620 to qualify for a Federal Housing Administration (or FHA) loan. The FHA loan is secured and insured, which guarantees payment to the lender by the FHA in the event “life happens” and the borrower defaults on their mortgage payments. Now, the cost of insuring the loan is passed onto the borrower, usually as part of the interest rate, which means higher interest rates, and usually a 3.5% upfront payment.
If your credit score is below 580, We have a video, whose link will be in the description of this video, to help you get a mortgage approval. We also have a video which details on the importance of credit to home loans that will also be in the description.
The bottom line is being prepared is the real “key focus area” here. You can count on the fact that this “beforehand” approach will streamline the process of mortgage approval for you, regardless of whether you’re seeking mortgage approval online or the traditional way. And in the spirit of knowing what to expect so you can be prepared and take the “beforehand” approach, keep in mind that the mortgage approval process from pre-qualification to moving into your new home, goes far beyond what is covered in this article. If you have any questions, feel free to leave them in the comments below. And if you’re looking to get pre-qualified email email@example.com