Getting approved for a mortgage is more simple than it was three years ago.
Along with lower mortgage rates, which makes it easier to qualify for a loan, lender requirements are looser, minimum credit score standards are lower, and loan approval times are quicker.
As with any financial transaction, though, consumers should be prepared to document their credibility to the bank, as well as their ability to repay a loan.
The good news is that lenders tend to ask the same five series of questions, and you can prepare for these questions in advance.
Today's home buyers face a different mortgage market as compared to buyers of last decade. There are fewer mortgage products from which to choose and lenders follow a different process to review and approve a loan.
Some of the differences are because lenders act with more caution as compared to last decade. For example, 10 years ago, mortgage lenders tended to trust a home buyer who said a home "was affordable" even if the numbers suggested otherwise.
Other mortgage market changes are linked to new laws -- specifically the Qualified Mortgage (QM) law.
Since January 2014, the federal government has enforced rules on new mortgages, requiring borrowers to maintain debt loads less than 43%; and lenders to cap loan fees as a percentage of total loan size.
Lenders must also make sure borrowers can actually afford their monthly payments using a formula based on income, assets, savings and debt.
Because of QM plus the Ability-to-Repay rule, lenders perform additional due diligence on customers which was unnecessary (or left undone) last decade. The extra due diligence often results in additional verifications, questions, and documentation to support your loan approval.
As a home buyer, it's a good idea to be ready for the scrutiny.
Documentation requirements will vary by lender, but there are certain verifications which all lenders will want to perform.
Whether you're a first-time home buyer or a seasoned one, you can expect your mortgage lender to ask questions from five broad areas, each important to your approval. This is true whether your using a FHA loan to make a purchase, a VA loan, or anything else.
Only streamlined refinance programs are sometimes exempt.
Your mortgage lender will ask the following questions, at minimum, about your residential history.
A 24-month residential history is required. Also, you will be required to verify your mortgage or rent payment history.
For homeowners with a mortgage which reports on credit, payment history can be culled from the credit bureaus. For renters, a Verification of Rent (VOR) will be required, which your lender will procure on your behalf.
For non-reporting mortgages, a Verification of Mortgage (VOM) is required. Again, your lender will procure this on your behalf.
Your mortgage lender will ask the following questions, at minimum, about your employment and income.
Many U.S. lenders will want to verify where you've been employed dating back 24 months. Inconsistencies in your employment and/or income type may prompt additional questions -- especially if your income is lower in the current year than it was in the year prior.
To support the answers to the questions above, your lender will request documentation including paycheck stubs, W-2 statements, and federal tax returns. It may also contact your employer for a Verification of Employment (VOE).
Employment and income are primary indicators of your ability to repay a loan. Because of QM, lenders will rarely make exception to out-of-the-ordinary circumstances.
Your mortgage lender will ask the following questions, at minimum, about your credit scores and credit history.
Much of the above information will be reported on your credit report, but it's a savvy move to know your credit history prior to an official review. As many as one quarter of all credit reports contain errors -- your lender won't know an error until you disprove it. Have payment histories handy for accounts which you know to be erroneous.
Your credit score is a primary factor in your final mortgage rate quote.
Your mortgage lender will ask the following questions, at minimum, about your monthly debts and obligations.
Again, much of this information will appear on your credit report but credit reports are sometimes generic with respect to monthly payments. If you're able to show that you pay your credit card in full each month, for example, you may have an easier time qualifying for your mortgage.
Similarly, if you can show that your student loans are in deferment, your debt-to-income ratios may be reduced.
Your mortgage lender will ask the following questions, at minimum, about your cash reserves and bank accounts.
In general, lenders want to make sure that you have ample assets to make a downpayment (where applicable); to cover closing costs which are due at settlement; and, to have at least two month's worth of mortgage payments available to you.
Expect to provide your lender with recent bank statements, and be prepared to explain "out-of-the-ordinary" deposits such as gift funds or transfers between accounts.
For today's home buyers, it's easier to get loan-approved than during any time this decade. Approval hurdles are lower among banks, and low mortgage rates have helped to reduce monthly mortgage obligations.
See how low today's mortgage rates can be. Complimentary mortgage rate quotes are available online, with no obligation to proceed, and with no social security number required to get started.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)