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You’re finally ready to take the plunge and start house-hunting. Have you thought about the loan qualifications to secure a mortgage? Nothing is worse than finding your dream home and not being able to close on it due to problems with financing.
Fortunately, the loan officers at Sammamish are here to support you in your quest to become a happy homeowner. They’ll be with you every step of the way as you apply for your new home loan, house-hunt, and close the deal on your new residence.
Prequalification is a surface level step offered by many lenders. It’s typically based on the assumption that answers you give to a list of questions are 100% true and accurate and that there are no other factors that need to be considered. No review of your documentation is done, and it’s really just a process designed to get a ballpark idea of what your total loan amount and interest rate might be if you were to be approved.
A prequalification letter isn’t really worth anything, as it’s not backed by an underwriter or an actual loan offer. You can show a pre-qual letter to a home seller or agent and they still won’t know if you are actually a qualified buyer. The only way to prove you are serious and capable of buying a home is with a preapproval.
A preapproval is a complete loan application process. You can complete the preapproval process before you even find the home you want to make an offer on. One you’re preapproved, you’ll have a loan offer in hand you can present to potential sellers or agents and you’ll have an edge over other would-be buyers who are merely prequalified.
The qualifications for a mortgage may vary based on the type of loan you are applying for. The documentation you’ll need can also vary slightly. In most cases, you’ll need all of the following:
To prove you are who you say you are, you’ll need to be able to provide a form of photo identification (such as a driver’s license) and your social security card. Your lender will need to be able to verify your identity and address, as well as run a credit check.
You’ll be expected to be able to provide proof of your income. If you are a regular employee, this means accessing your W-2 wage statements from the past two years, any recent pay stubs that record both your immediate income and the year-to-date (YTD) amount, and older pay stubs if necessary to show additional YTD from a former job.
You may also be asked to provide documentation of income from other sources, such as alimony, bonuses, or payments from a structured settlement. Print off copies of your two most recent tax returns to show consistency or growth in annual earnings. Finally, you’ll need to hand over bank statements or a letter from your CPA or investment manager confirming that you have funds to cover your down payment and closing costs, while leaving yourself an emergency ash reserve.
Your credit score is one of the first things the lender will look at. If your score is low, you may have to pay a higher interest rate or come up with a bigger down payment. If it’s below a certain threshold, you may not qualify for a conventional home loan at all.
That said, if you have a low credit score, you don’t have to give up on your dream of becoming a homeowner. You can build up your credit and position yourself to be accepted as a qualified home loan applicant. The team at Sammamish can tell you if your score is low and what steps you can take to improve it.
If you have ever had a foreclosure, even if your credit score has recovered, you may be asked for additional documentation and explanations regarding your foreclosure. If you can prove the foreclosure was due to a one time event over which you had no control, you can typically get an FHA loan after three years, and apply for a Fannie Mae or Freddie Mac loan after seven years.
Self-employed mortgage loan applicants will need to provide significant additional documentation to prove their income is regular and stable. You’ll be asked for two years each of personal and business tax returns, plus a copy of your business license and a statement from your CPA affirming you are in business.
You may also be required to provide either an audited profit and loss statement, or an unaudited P&L statement plus the last 60 days worth of business and/or personal bank statements. Being self employed doesn’t quash hopes of being approved for a home loan; it just means there are a few more steps.
While you’ll work with your loan officer, transaction coordinator and loan processor, the final decision is made by the underwriter. They are responsible for reviewing your application and all of the verified documentation, and applying their best judgement as to whether or not you can confidently repay the loan.
Factors the underwriter will take into account before approving or declining your loan application include your LTV and DTI. The LTV is the loan-to value ratio, or how much the requested loan amount is compared to the appraised value of the home you hope to buy. The DTI is your debt-to-income ratio, which compares how much your income is to your monthly and annual debt payments and other financial obligations.
If your LTV or DTI are outside of conventionally acceptable parameters, the underwriter has the leeway to look at other factors and find ways to help you qualify. You might be able to sell another property to increase your liquid assets, or purchase PMI (private mortgage insurance) to lower risk for the lender.
At Sammamish, our main focus is helping applicants through the preapproval process so they can qualify for a mortgage. All of our loan officers are highly experienced, and can help you navigate the tricky business of finding the right loan product for your needs.
With Sammamish, you’ll never be left in the dark about the status of your loan application. Our goal is to keep you informed of your application’s process at every step along the way, and remove the stress and anxiety that many feel when house-hunting.
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.