Some things to expect
The mortgage application process requires considerable paperwork. First there is the application form, which asks for detailed information about you, your employment record, the house you want to purchase, etc. The lender will need documentation pertaining to your personal finances – your earnings, your monthly expenses, and your debts–to help gauge your willingness and ability to repay the mortgage. Lenders also will examine your file at the credit bureau to learn if you pay your bills on time. A lender may reject your application if the report shows that you have a poor credit history. Thus, we make sure your credit file is accurate before your application is presented to the lender. You have a right to know what information is contained in your credit report and to have someone from the credit bureau help you understand what the report says. We will provide you the names of credit bureaus utilized in your loan request. You can prepare for questions about your financial condition by using the worksheets in this brochure.
There’s also a place for the estimated mortgage payment. To figure the mortgage payment, we will begin by asking how much you want to borrow. The maximum loan amount will be determined by the value of the property and your personal financial condition.
To determine the value of the property, a real estate appraiser will give an opinion about its value. The appraiser’s opinion can be an important factor in determining whether you qualify for the size of mortgage you want. Lenders usually will lend the borrower up to a certain percentage of the appraised value of the property, such as 80 or 90 percent, and will expect a down payment making up the difference. If the appraisal is below the asking price of the home, the down payment you planned to make and the amount the lender is willing to lend you may not be enough to cover the purchase price. In that case, we may suggest a larger down payment to make up the difference between the price of the house and its appraised value.
When looking at your projected mortgage payment and existing debt, some lenders might use ratios such as “28 and 36” to determine whether you qualify for the loan. These are commonly used ratios.
In the case of “28 and 36,” the 28 refers to the percentage of your gross income (before taxes) that may be spent on housing expenses, including principal and interest on the mortgage, real estate taxes, and insurance. The 36 refers to the income that may be spent for payments on all your debts (including the mortgage): the monthly payments on your outstanding debts, when added to the monthly housing expenses, should not exceed 36 percent of your gross income. Ratios used to evaluate your application vary according to down payment, credit scores and reserves.
Be prepared to provide certain documentation about your income (W2’s for prior years and year-to-date pay stubs), current debts (account number, outstanding balance, and creditor’s address for each), and the purchase contract for the home you want to buy. When you file your application the approval process time will vary. The time may vary depending on the complexity of your mortgage, current market conditions, and whether you have to provide additional information. It’s common for a decision to be made within hours after the lender receives all the necessary information. Applications for FHA or VA loans may take longer.
If Your Loan Is Denied
If your application is turned down, federal law requires the lender to tell you, in writing, the specific reasons for the denial. We will make sure you understand the reasons given—often we are able to find answers or alternatives that will satisfy the institution’s lending standards. Even if that doesn’t happen, understanding fully why the loan was denied may improve your chances with the next lender we contact. Factors that may affect the loan decision include:
Is your proposed down payment sufficient? Many of our lenders offer mortgages with low to no down-payment requirements.
Is the size of the mortgage you need too high, given the property’s appraised value? Have similar houses in the neighborhood sold at prices comparable to yours? Did the appraiser overvalue the property? We and the lender will examine the appraisal to insure the integrity of the purchase price. You also have the right to receive a copy of the appraisal if you have paid for it.
Lenders may doubt—because of your level of debt or credit history, your ability to make the monthly payment. We will match your debt ratios to the lender’s standards. If there were special circumstances surrounding old credit problems, we will make sure the lender listens to the explanation.