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Mortgage Application Tips
By Suvadip Das
Get a comfortable table or desk and spend the time to fill out your mortgage application neatly and correctly. If you are given a paper application at the bank or credit union, ask permission to bring it home and complete the application when you are not under pressure, and have all of your documents handy. If you are doing it online, use extra caution, watching out for mistypes, misspellings and make sure that you put the correct info into the correct form fields.
One way to smoothly go through the mortgage application process is to create your own application package approximately one year and no later than six months prior to applying for a residential mortgage loan. Gather all of your information, check your credit report and that way you can be aware of any surprises before you speak to a lender. Here are some of the things you should prepare during this period:
List of debts
Make sure you know exactly how much you owe and to whom the money is owed. If you are married or you are purchasing the home with a partner, help of a parent or some other second party, everyone should be aware of the total sum of all individual and joint debts.
Gather your documents for auto loans, school loans, personal loans, other mortgage payments, alimony payments, child support payments, credit cards and any other type outstanding debt. Create a master list with all of the items, account numbers, addresses, amounts owned, interest rates and monthly payments.
If you can pay off a significant portion of any one medium to large debt perhaps you should consider waiting an additional year before applying for the loan.
Recent addresses
If you have moved recently or have been upwardly mobile for a while, it can be difficult to remember all the addresses, apartment numbers and cities where you lived. Your address history should also be on your credit report, but you need something else such as old statements or information from your address book to make sure that your credit report is accurate.
Credit Report
Get a copy of your credit report from all three credit bureaus. Check the information from each report against your records and also against each other. Sometimes when an outstanding debt has been paid or settled, and you get out of debt, the information might be sent to only one bureau. Call your lender and ask if and when they information will be provided to the credit bureau.
Then, follow up with the credit bureaus to make sure the information has been added to your file. What type of information are you looking for: social security numbers, addresses, dates on accounts, opened accounts, closed accounts, outstanding debts, negative information that is incomplete or inaccurate.
List of assets
Frankly, how much are you worth? Do you have any stocks, bonds, savings accounts, retirement plans or own another home? Again, create a master list with the items, account numbers, worth or potential worth if liquidated and addresses or contact information.
If you are planning to sell any type of asset to use the money as down payment, try to complete the sale at least six months prior to filling out your mortgage application. Mortgage lenders always want to see that you have the money on hand for all of the costs associated with getting a mortgage. They generally look down on last minute buying and selling to come up with your cash. They want a snapshot of your current financial situation going back at least six months.
Supplemental paperwork
If you are getting alimony or child support payments and want this to be included in the calculations prepare the documentation to show how much money you are receiving and projections for how much you think you’ll receive in the future.
Bankruptcies and foreclosures
Your lender will be able to find out just about everything they want about your financial history so don’t try to hide foreclosures and bankruptcies. Just make sure the information is accurate. Gather all of your paperwork including dates, settlements or outstanding balances at the time the debt was discharged and keep it handy.
Employment History
Collect W-2 forms for the last 2 to 3 years that show your employment history and income. As with your payment habits, try not to make any sudden job changes within the 6 months to 1 year period prior to applying for the loan. Income changes look especially suspicious. If you experience a sudden dramatic increase or decrease in income be prepared to provide a full verbal or written explanation along with your paperwork.
Remember that the purpose of all this data collection is to make sure that you have the most accurate and update picture of your financial history to make the mortgage application process smooth and easy.
At times your mortgage application might be turned down. The possible reasons with some suggestions are mentioned:
The US finance market uses sophisticated credit searching and credit scoring procedures to determine each applicant’s credit worthiness. Vast databases are maintained by credit reference agencies listing current and past misdemeanors - how you have conducted your previous borrowing arrangements will affect future applications for finance such as loans, mortgages and credit cards. Any late payments, missed payments or arrears will lower your credit score, particularly if they are recent.
Most high street mortgage lenders do not want customers who have an imperfect financial past. Their computer systems are set to reject applications from people who have credit problems listed as they pose a higher risk.
In the past these lenders have offered mortgages with high fees and interest rates to borrowers who had few other options. But recently new lenders have come into an expanding non-conforming market with much better interest rates and terms and they are being closely followed by some of the larger lending institutions. The mortgage options available for a non-conforming borrower are now actually very good with a reasonable ‘risk’ margin being charged through slightly higher interest rates.
An experienced Independent Mortgage Broker will probe extensively into your financial affairs and ask about past credit problems. Gaining a copy of your credit report from a credit agency will enable your broker to more accurately assess any problems. Once all of the facts have been established your broker can begin to search for the best lender and the best interest rate package. They will then also continually liaise with the new lender to ensure your mortgage application progresses as smoothly as possible.
If all goes well, in a few years time your credit profile will have improved and you should be able to re-mortgage onto a "normal" mortgage rate, which will almost certainly be cheaper.
About the Author
Suvadip Das is a research fellow in management and a web developer. Web design is his passion. He works for Freelance Writer Organization and various websites including http://www.super-mortgages.com - More information on similar topics can be found at http://www.super-mortgages.com/Get-Out-of-Debt and http://www.super-mortgages.com/Residential-Mortgage-Loans
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