Buying real estate is one of the biggest investments you’re likely to make. As such, mortgage lenders have to make sure you can afford what you’re buying. Here are some things you can do to improve your chances of qualifying for a loan.
YOUR MORTGAGE TO-DO LIST
DO provide your lender with your homeowner insurance agent’s contact information as soon as possible. If you don’t have homeowner insurance, now is the time to talk to an insurance agent. Insurance can be difficult to get and more expensive than you realize, so providing your agent with enough lead time to find the best policy is a good idea.
DO keep copies of all new pay stubs, tax returns, bank statements and any other asset documentation. You’ll want at least two years’ worth for the lender, and you should keep tax returns for seven years. Be aware, any asset on your current tax return needs to be documented to its original acquisition date, the date when your tax basis starts and all the deductions since.
DO keep proof that your earnest money and option deposits have cleared your account by keeping a copy of the cancelled check(s) – front and back – and the bank statement showing funds cleared.
DO notify your lender immediately if any of the following change: income, assets, credit history, or address. If the change decreases your assets or income, be sure to discuss the changes at the earliest possible moment, and certainly before you spend a couple thousand dollars on property inspections.
DO submit a completed gift letter if your loan allows gift funds and you plan to accept them. The letter must be signed by all gift donors and borrowers.
YOUR MORTGAGE DO-NOT-DO LIST
DO NOT change your employment. Your lender will use your current job and income—and your anticipated future income from that job—to secure a loan for you. Changing this information complicates things. If you change jobs but maintain (or increase) your income—and remain in the same field—it’s not as big a deal. If you change industries, lenders can get a little nervous. They like stability. If you do make a job change of any sort, share it with your lender immediately.
DO NOT change your marital status. I recognize this is a bit more difficult than the job situation. If you and your spouse need to separate, then so be it. If you can stick it out, this is a good time to do so. Certainly, you shouldn’t stay married if the loan is the only reason, but staying together to help your spouse purchase a home that will provide a safe and comfortable place for your children to live can be a reasonable thing to do. If you must divorce, remember you and your former spouse will need to divide the equity in any jointly held property. Again, keep your lender in the loop.
DO NOT change your debt-to-income ratio or your asset-to-liability ratio. Said another way, do not take on new loans while you’re trying to get approved for a mortgage. Do not apply for a new car loan. Do not run up your credit card debt. Do not finance that boat you’ve always dreamed of. Just wait until you’ve closed escrow. If you can afford to pay your mortgage and buy a new car or boat, more power to you. Just be aware that before a new mortgage is finalized, they run a final credit report where any new financing will show up, and this can derail your loan.
In today’s world of greater regulation and loan scrutiny, little changes can lead to big problems. If you’re in the process of qualifying for a loan, stay in touch with your loan officer. Explain any changes as soon as you become aware of them.
If you have questions about getting into real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.