Unless you have been saving for years – or have recently won the lottery – when it comes time to purchase a new home, you’re going to need help financing it. For many homebuyers, this means qualifying for a mortgage. While many people just head down the street to their local credit union or bank, others enlist the services of a mortgage broker when it comes to funding their dream home.
A mortgage broker acts as the go-between a homebuyer and the banks that offer home loan products. To begin the process, a mortgage broker will ask you a series of questions, as well as request documentation to determine your assets and debt. After taking full stock of your financial situation, a mortgage broker’s goal is to find you the best loan for your unique situation.
Before you walk into the mortgage broker’s door, however, make sure you are ready to have an honest conversation about your finances.
The biggest concern for any loan company is your ability to repay the loan. Most banks require you to have stable employment, and many prefer that you have been with your current employer for at least two years. When you visit your mortgage broker, they will want to see the last two paycheck stubs from your current employer. This proves you have a job and gives them an idea as to your income.
If you are self-employed, it is harder to establish income – but not impossible. You will need the last two years of your tax returns, as well as bank statements. Mortgage brokers use the taxable income listed on the returns to establish your income. As you prepare your taxes, remember that business deductions help with your taxes but can severely limit or reduce the amount of income your mortgage broker can use to qualify you for a loan.
Although it is time consuming, when visiting a mortgage broker, you should have a detailed list of your assets prepared. These can be used to establish your worth. This may include tangible items like paintings, cars and other property owned. Your assets list should also include intangible items like savings accounts, investments, endowments, and retirement accounts. Your assets will help establish your ability to repay your loan and increase your chances of being approved.
Your mortgage broker will also ask for a list of the loans and credit cards that you owe. Like assets, the amount of debt you presently carry will factor into your mortgage approval. Lenders will then analyze how much of your monthly gross income goes towards paying these debts to come up with a debt to income ratio (DTI). If your DTI is too high, lenders most likely won’t approve you for the mortgage you’re seeking since it will appear as though you will be stretching yourself too thin to try and pay all of your monthly obligations once a new mortgage is thrown into the mix.
Once your mortgage broker has covered your income, assets, and debt, a tri-merge credit report will be pulled, which is essentially a credit report that pulls data from all 3 credit-reporting agencies. This credit report will be used to verify your debts, as well as show your payment history on debts over the course of the past 7 years. Your credit scores will also be pulled from the three credit bureaus, with the middle score typically being the score used for loan qualification purposes.
With credit scores, it is always good to have a high one. Most loan companies prefer borrowers to have a score of 700 or higher, although, lower scores can still qualify for a mortgage. Scores lower than 700 may require additional mortgage insurance or higher financing rates, however.
When you approach a mortgage broker, be ready to hear both the good and bad news. Mortgage brokers truly want to get you into your dream property, but they also want you to be able to afford it. These 4 key pieces of information outlined here will determine how much of a mortgage you will be able to qualify for and what you can do to improve your chances of qualifying for a mortgage sometime in the near future if you decide that now just isn’t the best time.
For more information on buying homes or selling them, contact us at bluehenhomebuyers.com.