One of the most nerve-wracking aspects of purchasing a home is the mortgage application and approval process. Regardless of your financial history, waiting for the OK from a lender can be unsettling when you’re trying to close on that perfect home.
For first-time homebuyers in particular, unfamiliarity with the process means a lot of shots in the dark when contacting mortgage lenders, searching Google for house-hunting advice and questioning whether your credit history is good enough to afford a home.
Whether it’s your first home purchase or you’ve owned previously, the mortgage industry is constantly evolving to reflect the current economy and better fit consumers who are looking to borrow.
The Hispanic population is a growing portion of homeowners nationwide, with Hispanic homebuyers accounting for 60 percent of total homeownership growth in the U.S. since 2010, according to the National Association of Hispanic Real Estate Professionals’ 2016 State of Hispanic Homeownership Report.
But even with the strong growth in Hispanic homeownership, some homebuyers in the community and many other Americans throughout the country are not familiar with programs available to make purchasing real estate more feasible. You might even qualify for mortgage products you didn’t know existed, and loan programs geared at making homebuying more accessible are often underutilized.
Case in point: Veterans Association home loans. A March 2017 study by national mortgage banker American Financing found the majority of post-9/11 veterans have yet to use a VA home loan. Among them, most of the more than 1 million injured veterans likely qualify for not only a no-down-payment loan, but are also exempt from having to pay a VA funding fee, which can be 1.5 to 3.3 percent of the loan amount, depending on the type of loan and the borrower's military service.
Part of this is due to the process of transitioning out of the military, says Tim Beyers, a mortgage analyst at American Financing. “You’re just trying to check as many boxes as you can. You may not be paying nearly enough attention to the benefits that are afforded to you,” he says.
But it’s not just veterans who are missing out on opportunities to be approved for a more affordable mortgage. Fannie Mae’s HomeReady mortgage program, for example, incorporates less-traditional underwriting practices to account for boarder income when you have roommates and offers down payments as low as 3 percent.
Here are six things you can do to boost your chances of getting approved for a mortgage that best fits best your financial situation.
Begin months in advance. Few people purchase a home on a whim, and most start dreaming about it months, if not years, ahead. Set a timeline six months to a year in advance and become familiar with mortgage interest rates, predictions for where they’ll be when you to apply for a mortgage, the typical cost of homes in your city and the monthly payments you think you could afford.
Changes on your financial statements, such as an increase in your line of credit or a paycheck bump, can make you more attractive to lenders. But give yourself at least two months (or two statement cycles) between the changes and when you apply for a mortgage, says David Birulin, vice president of lending with BrightStar Credit Union in South Florida.
Find a guiding hand early on. Especially if you’re a first-time homebuyer, you’ll want to work closely with a real estate professional you can trust to guide you every step of the way.
“Someone who is experienced in the community, has a great reputation and is willing to help you really navigate through the process,” says Gary Acosta, co-founder and CEO of NAHREP.
When it comes to connecting with a mortgage professional, Birulin recommends asking how the loan officer or originator is compensated. Someone who works entirely on commission and makes more when you take on a bigger loan with higher interest may not be your best option when you’re looking for a lot of guidance in the process.
Start gathering your financial information. When it comes time to apply for a mortgage, you not only want to have all your relevant information – pay stubs, W-2 forms from the last two years, tax returns, residence history and more – but you want to know what’s in your financial records as well, from positive credit histories to blemishes that could create a hurdle for loan approval.
Birulin recently began gathering information to prepare to purchase a new home. “There were some accounts I thought were cleared that weren’t cleared,” he says. By going through the information in advance, Birulin has been able to resolve issues that might complicate a mortgage approval.
Hhaving all your financial ducks in a row means all your ducks. From a room listed Airbnb to an Etsy shop, many Americans are getting additional income that should be accounted for.
“Make sure all the money that’s collected is deposited in one bank account, so that there is a way to track that and quantify that,” Acosta says.
Reduce debt. By getting a mortgage, you’re taking on a substantial amount of debt, so you want to have as little debt from other sources as possible. Student or car loans aren’t likely to be a deal breaker for mortgage approval, but heavy credit card debt or high existing monthly payments could be a problem.
Use your credit cards less. With your debt paid down, use your credit cards less in the months prior to applying for a mortgage. Even if you’re paying off your balance every month, lenders will look more favorably at a borrower who utilizes 30 percent or less of his or her total lines of credit, Birulin says.
[See: The Best Apps for House Hunting.]
Look for programs that work for you. Even if you only have a vague understanding of the types of programs you may qualify for, a trustworthy loan originator, loan officer or mortgage broker will explore every option with you to help you decide the best course of action. Many major banks and organizations like the VA offer information about all their loan products and programs online.
“A good bank will work with you to make sure that you’re getting the fullest extent of your benefits,” Beyers says, referring particularly to VA programs.
Corrected on March 31, 2017: A previous version of this story incorrectly stated the name of American Financing.
She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at email@example.com.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.