Essential Steps to a Better Loan Application

[Feb 17, 2009.]

 

Taking the time to prepare well for your mortgage loan application interview will go a long way toward a quick loan approval and a smooth process overall.  The loan application is taken in four parts: income, assets, credit, and property.  When you are discussing each of these four categories with your loan officer, make sure you fully disclose anything that might be relevant.  At this time, there is really no way to keep anything from the bank that is reviewing your application.  Anything that you do not disclose upfront, will be found out during the process and can open a can of worms that can kill your deal. 

Income

The most important thing in this category is History.  The banks will require a two year, complete History of all borrowers’ employment.  It is important to have dates of employment correct.  The underwriters will be checking with each of the previous employers to make sure of the dates you disclose.  Make sure your dates are correct when you tell the loan officer.  If you have had any gaps in employment in that two year History, you will have to explain the gaps.

The best scenario in the income category is job stability.  The underwriters are happiest to see that you have been at the same job for years.  Lots of job changes are a red flag to a bank.

If you are self-employed, your income will not even be considered until it has been seasoned for two full years.  Even then, the underwriter will average the income you claim on your tax returns over 24 months.  Since most new business write off start up costs in those first years, it is unusual for a business to show its best profits in the first years.

Assets

Think “savings pattern.”  The underwriter wants to see that you are able to save money for a rainy day.  This gives the bank security that you manage your money well and that if times get tough, you’ll be able pay your mortgage.

The bank will verify your assets with two most recent months’ mortgage statements.  Make sure that you copy ALL pages of the bank statement.  The underwriter will want to see all pages, even if it is a fifteen page statement. 

Credit

Minimum credit scores have become much tighter, even on FHA loans.  The first payment default rate of credit scores below 600 is 15%.  That statistic has terrified many a banker.  Therefore, the minimum credit score is almost always 620 these days.  FHA will still do lower scores, but the addition to the interest rate is very high.  Expect to pay a much higher than market interest rate if your score is below 620.  Make sure you check your credit carefully with your loan officer and make any improvement that you can afford.  Many loan officers are equipped

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.