You’ve heard that getting a mortgage ranges from “insanely difficult” to “practically impossible for mere mortals,” right? However, if you have reasonable credit (600 or higher for a conventional loan) and can document your income and assets with the mortgage application, you’ll get your loan with few, if any, problems or delays.
Even though the belief that lenders have crazy-high standards today is completely false, the process of getting a mortgage today is more exacting than it once was. Underwriters, who review applications and approve loans, go over every little detail in the loan package, uncovering possible defects or problem areas.
This attention to detail doesn’t mean they’re looking for reasons to deny your loan; believe it or not, underwriters LOVE to approve loans. They are just making sure all the pieces of every loan puzzle fit together as they should.
If you understand what the underwriter is looking for, you’ll be better prepared—and your loan will sail easily through the approval process.
Income
You’ll give your loan officer a month’s paystubs to document your income. You’ll also provide last year’s W2. If you get overtime, you’ll have to document that you’ve received it for at least 24 months. If that’s not possible, you won’t be able to use that income to qualify—no matter how much money it is.
Multiple jobs
In general, you have to show that you have been in the same line of work for at least two years. If you’ve been working at your present job for just six months, your loan officer will get information about your previous employer.
TIP: Provide all salary information for any previous jobs, along with full contact information for the previous employer(s). The underwriter WILL require a VOE from the previous employer.
Gaps in Employment
If you were laid off for a month or so, but went back to work at a different company, you’ll be fine, so long as you can explain any gap in a reasonable way.
TIP: Write a letter of explanation about any gaps in your job history. Do this before your loan officer submits your loan. It is far better to be proactive.
If you were laid off for a month or so, but went back to work at a different company, you’ll be fine, so long as you can explain any gap in a reasonable way.TIP: Write a letter of explanation about any gaps in your job history. Do this before your loan officer submits your loan. It is far better to be proactive.
Liquid assets
No, we’re not talking about that special bottle of 30-year old scotch. If you are buying a home, you’ll have to pay cash to close your escrow. You will have to provide documentation for all money going into the transaction. If your cash is sitting in a savings account, you’ll provide two months’ full statements for that account.
This is where you can run into trouble if you’re not careful. Specifically, you’ll have to document any “large” deposits to the account. “Large” would mean deposits not identified as payroll, tax refund or transfers from other documented accounts and which exceed 10% of your gross monthly income.
TIP #1: Keep in mind that if you transfer money from another account, you’ll have to provide statements from that account as well. That account will be subject to the same kind of scrutiny.
TIP #2: While your mortgage application is in progress, avoid moving money around if possible.
TIP #3: If you receive a “large” sum of cash from some source, like selling a car, be prepared to document the receipt of those funds, assuming you deposit them into one of your accounts.
Gift funds
If you have a generous relative who loves you so much that they will give you a gift of cash to buy your home, you should know about the procedure for gift funds. First, your donor will sign a Gift Letter. This simple form says that they are making a gift of x-number of dollars for the purchase of your home, that it is a gift, and that it does not have to be repaid. The donor will also have to provide a full bank statement showing the source of the funds they are giving you.
TIP: Be sure your donor is aware of this procedure and is willing to hand over a full bank statement. They can’t black out or edit anything on that statement, or else the underwriter will reject it.
Previous addresses
Your loan application will list your previous addresses for at least the last 24 months. Your credit report will show the same information—with one important difference: the credit bureaus are often completely wrong about past addresses.
One common example: you may have lived at your present address since January, 2017, and the credit report lists that. But they may also list your previous address from five years ago, but ending June, 2015. This would obviously be wrong, but it brings us to another point of advice. TIP: Check for address discrepancies on your credit report. Write a simple letter of explanation to clear up your actual residence addresses and dates.
Letters of Explanation (LOE)
These simple notes don’t have to be elaborate or wordy. Just briefly explain the issue in question. Address the LOE “To Whom It May Concern,” sign it, and date it. Being proactive will save you a great deal of time.
While it’s true that getting a mortgage is not as easy-peasy as it once was, paying attention to these details will make it seem like a breeze.
When you use these tips to cure your application headaches, you’ll have a much better experience, especially if you’re buying and selling a home at the same time.
We get the argument a lot from borrowers that this should not matter but most do not realize the amount of fraud or mistakes that are on tax returns and that is why lenders have to obtain transcripts of tax returns to close a mortgage loan in many circumstances.
So to avoid delays or issues late in the process, it is best to provide all documentation requested at once and up-front. Then it can be reviewed, accurate income and debt ratios calculated, and have more confidence later in the process.