Buying a home today is tougher than ever. The Federal Government has over-regulated the mortgage industry (a good thing) due to the housing collapse in 2007. It’s not a bad thing, however, it will make the process for attaining financing extremely stressful, time consuming, and frustrating at times.
I tell my clients, “Buying a home isn’t easy, but it can be simple if you follow the instructions I give you.”
The GOOD NEWS is – after hundreds of closed loans in this market, I’ve created a system that takes a very complex process and simplifies it for you. I have a large professional Team that is here to assist along the way as well (you’ll get to know them and appreciate them as you see my clients raving about them on Yelp).
In this article, I will give you a wining game-plan to acing your mortgage application: You will understand the 4 areas that and underwriter will base their approval on:
(3) Income (employment)
#1 – KNOW YOUR CREDIT SCORE
The first step in getting pre-approved for a mortgage involves pulling a copy of your credit report and conducting a pre-mortgage credit analysis. Most banks, online lenders, and credit unions require a 640 minimum credit score. Our bank is a direct lender with NO overlays, therefore, we rely on agency credit score guidelines (as follows).
The Washington USDA Home Loan Program requires a 580 credit score. As well, a 580 minimum credit score is required for Washington State VA and FHA financing. Conventional Fannie Mae financing requires a 620 minimum credit score.
In addition to a qualifying credit score, banks like to see 3 tradelines (accounts) that have a 12-month payment history reporting on your credit report. If you do not have 3 tradelines reporting on your credit report, we can often times work around this problem to arrive at a solution, but we’ll need to take a look. The other option is to support your credit history with non-traditional credit (bills, accounts paid monthly that don’t report to your credit – auto insurance, utility bill, cell phone, rent…), but this can take some time to build.
If you’ve missed the mark as it pertains to your credit score, you can still purchase a home. Many people think that you cannot buy a home with a bankruptcy, shortsale or foreclosure on your credit report, and that simply is not the case. It is important to speak with a mortgage professional that understands credit and is equipped to help you begin a credit repair immediately. As always, my Team would be happy to review your credit report with you and give you appropriate feedback for getting approved to purchase a home.
#2 – CASH – (DOWN PAYMENT & CLOSING COSTS)
Most loan programs require a down payment. All loan programs have borrower paid closing costs. There are a few $0 Down Loan options such as:
(1) The USDA-Rural Home Loan
(2) The VA Home Loan
(3) Washington State Home Advantage Loan
All other loan programs require the borrower to make a down payment on their purchase. In addition to that down payment, closing costs are included. Depending on the loan program, agency guidelines may require the borrower to have “reserves” or money in the bank after the down payment and closing costs are paid.
Banks will require you to prove that you have money in your checking, savings, 401k, or investment account to pay for your down payment and closing costs. In some situations today, the seller is paying the borrower’s closing costs, so the only remaining funds to close is the down payment.
Down payment money must be verified – You may receive gift funds to purchase a home, but either way, you must properly support and provide a paper trail of where those funds originated.
#3 – DOCUMENTING YOUR INCOME/EMPLOYMENT
Banks require a 2-year, consistent employment history. “Consistent” means both working in the same line of work, and without gaps employment. Exceptions can be made if there are gaps in employment, but in most cases, a previous 6-month consistent work history prior to buying a home is required.
If you are a college student, intern, or apprentice – the time spent in school or training qualifies as “employment history” in most cases.
Listen up here (this is where most loans encounter issues) – The bank will require you to support your work history with 2-years W-2s, 2-years tax returns, 30-days most recent pay stubs, and college degree (if applicable). The underwriter will order tax transcripts from the IRS to verify your tax returns and to ensure your taxes are paid. Any outstanding IRS debts may be required to be paid before buying a home. Prior to funding your loan, the bank will contact your employer to confirm that you are currently employed and to verify HOW you are paid (bonuses, hourly, commissioned, salary..). Mortgage Pre-Approval Checklist With Dan Keller.
SUPPORTING YOUR “QUALIFYING” INCOME
Although you earn an annual gross income, that isn’t necessarily your “qualifying income”. This is the importance of being FULLY APPROVED/PRE-UNDERWRITTEN vs pre-approved (which we offer to all of our clients upfront to avoid ANY errors).
If you work overtime, receive bonuses or are self-employed, the bank will require you to support a consistent history of that additional income in order to use it a “qualifying income”. You will need to provide your most recent paystubs for the past month, and the bank will conduct a Verification of Employment with your employer and breakdown your income over the past year.
#4 – TYPE OF PROPERTY
The different types of property you can finance are:
(1) Single family homes (SFR)
(4) Manufactured homes
Each of these property types require specific agency requirements. Please see me for more details.
NEXT STEPS: ESTABLISHING A BUDGET (MORTGAGE PLAN)
In some cases, a bank will approve you for a mortgage in an amount higher than you wish to afford. A professional mortgage advisor will conduct a pre-mortgage credit analysis a help you determine a mortgage and financial budget designed to helping you pay-off your debt and eventually your mortgage early saving you thousands of dollars in interest paid. We value the opportunity to review and establish a budget for you!
PROPERTY – FIND THE RIGHT REALTOR
I highly recommend that you not only work with a real estate professional that knows Puget Sound Real Estate, but more importantly, work with a real estate professional that sells real estate 40 hours/week. You would never visit a doctor that practiced medicine on the side, so why make the largest financial decision of your life with a part-time real estate agent? I work with some of Washington’s finest real estate professionals, and would be happy to refer an agent to you.
THE PERFECT LOAN PROCESS W/ DAN KELLER
GET PRE-APPROVED WITH DAN KELLER
We make it easy. I encourage each of my clients to reach out to me through email or phone call to have an initial mortgage planning discussion surrounding your current situation, goals/budget, and timeline. There are so many additional factors that go into qualifying for a Home Loan today, it’s important that you are working with a professional that understands the ins and outs of the process and current market trends.
To apply for a Home Loan, visit my Mortgage Concierge Page and follow steps one and two.
I WANT TO BE YOUR MORTGAGE ADVISOR!
I LOVE connecting with my social media followers and readers! You are the reason I produce this content and share it weekly on Seattle Real Estate Radio 1300am. I can always be reached directly at 425-350-7136 or via email at firstname.lastname@example.org
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More Info On Our Next Home Buyer Class – Home Buying 101 Mixer
Get Pre-Approved With Dan – Apply Now
Monthly Budget With Dan Class – www.BudgetWithDan.com
Download My Mortgage Planning Guide – Dan Keller’s Mortgage Planning Guide
Buying a home is the largest financial decision is the largest financial decision you'll make in your life.
Who you have managing that process is more important than you know.