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Monday, September 9, 2013

How to best prepare for new home loan hurdles and requirements

Mortgage interest rates and the condition of the housing market are out of your hands but obtaining a loan doesn't have to be with the right preparation.

Ask anyone who bought a home before 2009, home loans are harder to get than they have been in years.  Lending requirements are constantly changing and for the most part, they aren't getting any easier.  Besides that, mortgage interest rates are on the rise and home prices will be soon to follow that.

So does that mean you can't get a mortgage?  Or you should rush to get one before lending requirement become even more strict? Absolutely not.  It just means you have to be prepared for the hurdles that may arise in the process.

Depending on your circumstances, getting a home loan sooner than later can be very beneficial.  You are more likely to result in a lower payment when buying now, as opposed to six months down the road.  However if you aren't quite ready to get a home loan, this means you have more time to prepare and should be aware of what paperwork and requirements are needed to meet a home loan approval.  

Rather than rushing into a situation right now, read the advice below and see how can you apply it to your situation.  Its important to know how to be a good borrower and adjust for the tighter lending requirements.

Eliminate ALL or As Much Debt As Possible

When I originally wrote this article, I was going to make this Rule No. 3, but given the enormous impact of debt in the post-crash era I wanted to stress the importance of keeping debt to a minimum, if at all.  

Anyone who wishes to qualify for a mortgage should watch their debt level.  It's best to get it cleared up before trying to buy a home or refinance to ensure you have the most amount of money in your pocket at the time of the transaction.  

Some common debt-related questions you should know.  Any credit card, loan, or other transaction that requires a sales guy to run your credit will most likely appear on your credit report.  The more lines of credit you have, the more monthly payments (debt) you have to take into account.  Avoid the pushy sales people that urge you to get a credit card in order to save an extra 15%.  In the end, you will be happy knowing that you qualify for more house with applying for a home loan.  

Also, remember that student loans also count as debt.  If they are deferred, it's likely you can exclude them from your monthly debt ratios, however check with your local loan officer before making the decision to buy or refinance your home.  

Lastly, as you complete the home buying process, remember not to open any credit lines until after your loan has closed and funded.  Any extra added debt may exceed your debt ratios, even if you were once previously qualified.  

Don't Change Jobs, Unless You Need To

Job hunting and mortgage shopping don't exactly go hand in hand.  When being considered for loan approval, job stability and the ability to repay your mortgage is one of the biggest qualifying factors.  If you're thinking about changing jobs or have a new opportunity lined up, you might want to see if it's possible to wait until after you make a home purchase.  

All income over the last two years must be documented.  Meaning, you will need tax returns showing your income for the last two previous years before applying for a mortgage.  If you have unique circumstances, sometimes a letter from your CPA explaining the situation can add further explanation.  

Besides tax returns, most lenders will require you to show your last 30 days worth of pay stubs.  It's best to talk to your HR department when trying to track down these records.  

Stay Away From the Big Guys. Try a Smaller, Community Lender 

A lot of the new mortgage rules and requirements are exempt from community banks and smaller lending institutions, giving them a higher chance of approving home loans.  Often times, fees with smaller lenders are a lot less than the bigger guys too.  

It's normal to talk to half a dozen lenders.  Most can give you a Good Faith Estimate (GFE) that you can compare all the numbers and figures with, in order to make your most informed decision.  Often times by speaking with your local loan officer, they can match or offer pricing similar to the competitor.  

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The important thing to remember is to not be discouraged.  Lending requirements are designed to control your ability to repay the loan, meaning that if you are ready financially to buy, getting approved shouldn't be too hard.  It's simple; if the mortgage doesn't fit you, don't get it.   

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