Can I apply for a loan before I find a property to purchase?

Usually yes, applying for a mortgage loan before you find a home may be the best thing you could do! If you apply for your mortgage now, you may receive an approval subject to you finding the perfect home. A pre-approval letter can be issued, which you can use to assure real estate brokers and sellers that you are a qualified buyer. Having a pre-approval for a mortgage may give more weight to any offer to purchase that you make.

When you find the perfect home, you’ll simply call your Loan Officer to complete your application. You’ll have an opportunity to lock in rates and fees then, and the processing of your request will be completed.

What is a credit score and how will my credit score affect my application?

A credit score is one of the pieces of information that will be used to evaluate your application. Financial institutions have been using credit scores to evaluate credit card and auto applications for many years, but only recently have mortgage lenders begun to use credit scoring to assist with their loan decisions.

Credit scores are based on information collected by credit bureaus and information reported each month by your creditors about the balances you owe and the timing of your payments. A credit score is a compilation of all this information converted into a number that helps a lender to determine the likelihood that you will repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender. Credit scores are calculated by comparing your credit history with millions of other consumers. They have proven to be a very effective way of determining credit worthiness.

Some of the things that affect your credit score include your payment history, your outstanding obligations, the length of time you have had outstanding credit, the types of credit you use, and the number of inquiries that have been made about your credit history in the recent past.

Credit scores used for mortgage loan decisions range from approximately 300 to 900. Generally, the higher your credit score, the lower the risk that your payments won’t be paid as agreed.

Using credit scores to evaluate your credit history allows for a quick and objective evaluation of your credit history when reviewing your loan application. However, there are many other factors considered when making a loan decision, and your application will be evaluated based on your total financial picture.

Will the inquiry about my credit affect my credit score?

An abundance of credit inquiries can sometimes affect your credit scores since it may indicate that your use of credit is increasing.

But don’t overreact! The data used to calculate your credit score doesn’t include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry. Don’t limit your mortgage shopping for fear of the effect on your credit score.

Will I be charged any fees if I authorize my credit information to be accessed?

There is typically no charge to you for the credit information accessed with your permission to evaluate your application online. You will only be charged for a credit report if you decide to complete the application process after your loan is approved.

Are we right for you?

Whether you’re purchasing or refinancing, you’ll likely find the service provided to be comprehensive and helpful.

If you’ll be purchasing but haven’t found the perfect home yet, completing an application may result in an approval for a mortgage loan with no obligation.

Can I really borrow funds to use towards my down payment?

Often, you can borrow funds to use as your down payment! However, any loans that you take out must be secured by an asset that you own. If you own something of value that you could borrow funds against such as a car or another home, it’s a perfectly acceptable source of funds. If you are planning on obtaining a loan, make sure to include the details of this loan in the Expenses section of the application. Talk to your loan officer for details.

How do lenders decide what they need from me to process my loan?

Many lenders take full advantage of automated underwriting systems that allow them to request as little information as possible to verify the data you provided during your loan application. Gone are the days when it was necessary to verify every piece of data collected during the application. The automated underwriting system compares your financial situation with statistical data from millions of other homeowners and uses that comparison to determine the level of verification needed. In many cases, a single W-2 or pay stub can be used to verify your income or a single bank statement can be used to verify the assets needed to close your loan.

I’m self-employed. How will lenders verify my income?

Generally, the income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two-year period. However, based on your entire financial situation, full copies of your tax returns may not be needed.

Lenders will review and average the net income from self-employment that’s reported on your tax returns to determine the income that can be used to qualify. They won’t be able to consider any income that hasn’t been reported as such on your tax returns. Typically, they’ll need at least one, and sometimes a full two-year history of self-employment to verify that your self-employment income is stable.

Will my overtime, commission, or bonus income be considered when evaluating my application?

In order for bonus, overtime, or commission income to be considered, you must have a history of receiving it and it must be likely to continue. Lenders will usually need to obtain copies of W-2 statements for the previous two years and a recent pay stub to verify this type of income. If a major part of your income is commission earnings, they may need to obtain copies of recent tax returns to verify the amount of business-related expenses, if any. They’ll average the amounts you have received over the past two years to calculate the amount that can be considered as a regular part of your income.

If you haven’t been receiving bonus, overtime, or commission income for at least one year, it probably can’t be given full value when your loan is reviewed for approval.

I am retired and my income is from pension or social security. What will I need to provide?

Lenders will ask for copies of your recent pension check stubs, or bank statement if your pension or retirement income is deposited directly in your bank account. Sometimes it will also be necessary to verify that this income will continue for at least three years since some pension or retirement plans do not provide income for life. This can usually be verified with a copy of your award letter. If you don’t have an award letter, the lender can contact the source of this income directly for verification.

If you’re receiving tax-free income, such as social security earnings in some cases, the lender will consider the fact that taxes will not be deducted from this income when reviewing your request.

If I have income that’s not reported on my tax return, can it be considered?

Generally, only income that is reported on your tax return can be considered when applying for a mortgage. Unless, of course, the income is legally tax-free and isn’t required to be reported.

Some lenders may offer stated income programs, which means that you can be qualified for a loan based on the income you state rather than that which can be verified. Usually these programs require larger down payments and offer interest rates that are substantially higher than regular mortgage rates.

How do I lock my rate?

Contact your loan officer for information on locking your rate.

How will rental income be verified?

If you own rental properties, lenders will generally ask for the most recent year’s federal tax return to verify your rental income. They’ll review the Schedule E of the tax return to verify your rental income, after all expenses except depreciation. Since depreciation is only a paper loss, it won’t be counted against your rental income.

If you haven’t owned the rental property for a complete tax year, they’ll ask for a copy of any leases you’ve executed and they’ll estimate the expenses of ownership.

I have income from dividends and/or interest. What documents will I need to provide?

Generally, two years personal tax returns are required to verify the amount of your dividend and/or interest income so that an average of the amounts you receive can be calculated. In addition, lenders will need to verify your ownership of the assets that generate the income using copies of statements from your financial institution, brokerage statements, stock certificates or Promissory Notes.

Typically, income from dividends and/or interest must be expected to continue for at least three years to be considered for repayment.

Do I have to provide information about my child support, alimony or separate maintenance income?

Information about child support, alimony, or separate maintenance income does not need to be provided unless you wish to have it considered for repaying this mortgage loan.

Will my second job income be considered?

Typically, income from a second job will be considered if a one-year history of secondary employment can be verified.

I’ve had a few employers in the last few years. Will that affect my ability to get a new mortgage?

Having changed employers frequently is typically not a hindrance to obtaining a new mortgage loan. This is particularly true if you made employment changes without having periods of time in between without employment. Lenders will also look at your income advancements as you have changed employment.

If you’re paid on a commission basis, a recent job change may be an issue since it will be difficult to predict your earnings without a history with your new employer.

I was in school before obtaining my current job. How do I complete the application?

If you were in school before your current job, enter the name of the school you attended and the length of time you were in school in the “length of employment” fields. You can enter a position of “student” and income of “0.”

If my property’s appraised value is more than the purchase price can I use the difference towards my down payment?

Unfortunately, if you are purchasing a home, lenders will have to use the lower of the appraised value or the sales price to determine your down payment requirement.

It’s still a great benefit for your financial situation if you are able to purchase a home for less than the appraised value, but investors don’t allow lenders to use this “instant equity” when making loan decisions.

I’m getting a gift from someone else. Is this an acceptable source of my down payment?

Gifts are an acceptable source of down payment, if the gift giver is related to you or your co-borrower. You’ll be asked for the name, address, and phone number of the gift giver, as well as the donor’s relationship to you.

If your loan request is for more than 80% of the purchase price, lenders will need to verify that you have at least 5% of the property’s value in your own assets.

Prior to closing, they’ll verify that the gift funds have been transferred to you by obtaining a copy of your bank receipt or deposit slip to verify that you have deposited the gift funds into your account.

I am selling my current home to purchase this home. What type of documentation will be required?

If you’re selling your current home to purchase your new home, you’ll be asked to provide a copy of the settlement or closing statement you’ll receive at the closing to verify that your current mortgage has been paid in full and that you’ll have sufficient funds for the new closing. Often the closing of your current home is scheduled for the same day as the closing of your new home. If that’s the case, you’ll just need to bring your settlement statement with you to your new mortgage closing.

I am relocating because I have accepted a new job that I haven’t started yet. How should I complete the application?

Congratulations on your new job! If you will be working for the same employer, complete the application as such but enter the income you anticipate you’ll be receiving at your new location.

If your employment is with a new employer, complete the application as if this were your current employer and indicate that you have been there for one month. The information about the employment you’ll be leaving should be entered as a previous employer. The lender will sort out the details after you submit your loan for approval.

I’ve co-signed a loan for another person. Should I include that debt here?

Generally, a co-signed debt is considered when determining your qualifications for a mortgage. If the co-signed debt doesn’t affect your ability to obtain a new mortgage it will be left at that. However, if it does make a difference, the monthly payment of the co-signed debt can be ignored if you can provide verification that the other person responsible for the debt has made the required payments, by obtaining copies of their cancelled checks for the last six months.

I have student loans that aren’t in repayment yet. Should I show them as installment debts?

Any student loan that will go into repayment within the next six months should be included in the application. If you are not sure exactly what the monthly payment will be at this time, enter an estimated amount.

If other student loans are reflected on your final credit report, which will not go into repayment in the next six months, you may need to provide verification that repayment will not be required during this time period.

How will a past bankruptcy or foreclosure affect my ability to obtain a new mortgage?

If you’ve had a bankruptcy or foreclosure in the past, it may affect your ability to get a new mortgage. Unless the bankruptcy or foreclosure was caused by situations beyond your control, lenders will generally require that two to four years have passed since the bankruptcy or foreclosure. It is also important that you’ve re-established an acceptable credit history with new loans or credit cards.

What, exactly, is an installment debt?

An installment debt is a loan that you make payments on, such as an auto loan, a student loan or a debt consolidation loan. Do not include payments on other living expenses, such as insurance costs or medical bill payments. Lenders will include any installment debts that have more than 10 months remaining when determining your qualifications for this mortgage.