A mortgage is something that sounds both wonderful and terrifying at the same time. Wonderful because it bears the promise of finally settling down in a place that one can call his or her own, but terrifying because it comes with a financial responsibility that one has to bear for the next ten to thirty years. Still, this is a responsibility that most are able to take because in most cases, the pros will outweigh the cons.
Once the decision has been make the purchase (and the house as well as the lender has been chosen), then the paperwork needs to be filed. Do be mindful of this step as the approval of the application will be fully dependent on the integrity of your paperwork. If there are undeclared items that surface in the credit report, or there are declared incomes that cannot be proven, then this may lead to the delay or even the decline of the mortgage.
When going through the mortgage application process, remember that there are three things that the underwriter looks in order to approve the loan. In no order, these are:
Collateral – the underwriter will compare the cost of the house to the requested amount of the loan and check to see if the loan amount is fair enough, and if the house will be able to cover for the loan amount requested. A quick look will also be taken at the amount of the downpayment. Do expect that there may be a request to verify the source of funds for the downpayment.
Capacity – one thing that the mortgage application process does is make sure that the borrower has the ability to pay off the debt, and that the lender is not going into an agreement that has a huge potential to turn sour. In the form 1003, the borrower will need to provide how much he or she earns, as well as the current payments that he or she has. It’s usually preferred by lenders that all expenses should not be more than 30% of the gross monthly income.
Credit – a check will also be done on the applicant’s credit history, to make sure that everything is in order. Delayed payments and bankruptcy may be causes for declines, so it is important that if an event in the past is reflecting negatively on a credit report then one should at least have an explanation for it in writing. Documented proof will also be a huge help.
Once the application is passed and the underwriter receives it, most people would undergo what is usually termed as “clearing conditions”. This is a step in the mortgage application process wherein the underwriter would like to verify certain portions of the application. These may vary from clarifications regarding employment history or bank records, to the presentation of documents regarding accounts that have been paid off but are not reflecting as such. Do not delay upon receiving these requests, because they usually take time, and your should have all requirements present at the time of the closing of the loan (a week prior to the scheduled closing would be good).
When going through the mortgage application process, the most important thing is to make sure that all papers are in order, and that every proof of your financial stability is present. With a good loan officer and smart documentation, you would not need to go through the process more than once for a house.