Tuesday, July 18, 2017

The 3 Factors That Sway Your Application for a Mortgage Loan

If you’re applying for a mortgage loan, there are three things lending professionals look at to determine whether you’re approved or not.

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When applying for a mortgage, there are three main factors that get taken into consideration. As I like to say, banks like to go “CIA” on you when you apply for a mortgage, and the “CIA” stands for these three factors: credit, income, and assets.

Credit is important because it will determine whether you qualify for a loan or not. Your first step, then, should be to get credit-qualified. All this means is a verification that your credit is good—don’t confuse it with a full qualification.

When people come into my office, we tell them they’re either credit-approved or credit-denied. When you’re credit-approved, it just means your score is high enough to apply for a mortgage loan. When you’re credit-denied, it means your credit scores are not quite where they need to be.

If you’re credit-approved, the next thing to look at is your income, or how much house you qualify for. In order to know this, we analyze all the different forms of income you have. Keep in mind, we can’t use money you make and collect in cash—we need income from verifiable sources.

If you have a job, we can use your regular W-2 income. Typically, you only need a two-year work history, and we would use your regular salary in that case. The second type of income we use is self-employed income. If you’re self-employed and own your own business, we’d use your tax returns for the past two years. This includes your 1099s and your write-offs, so make sure you file your taxes properly. If you’ve done a lot of job-jumping or you work multiple jobs, you don’t need to worry as long as we can document what your current pay is and you stay put during the mortgage process.

Once these three factors are settled, that’s when you become fully approved.

If you have social security or disability income, you can qualify for a house as long as that income is stable and likely to continue for the next three years. We can also use child support and alimony as sources of income. In the case of child support, the child you’re claiming it on must be receiving it for three years into the future. In other words, if your child is 17, we probably won’t be able to use your child support as qualifiable income.

Finally, we examine your assets to see how much of your down payment they can cover. Don’t believe the myth that you need 20% down to buy a home. However, you will probably have to pay some kind of down payment and/or have some closing cost money available. In many cases, these can reduce your cash to close. Typical loans start at 3% down unless you’re a veteran, in which case you can get a loan for zero money down.

The types of assets we can use include a gift from a family member, the money you saved up as your own, a gift of equity (if you’re buying from a family member), or down payment assistance or tax credits.

Once these three factors are settled, that’s when you become fully approved. If you have any questions about applying for a mortgage loan, feel free to give me a shout. I’d be happy to help.