Bob Weathers of WH Mortgage Solutions knows the struggles that can come with home buying. For that reason, he’s compiled a list of essential tips. Visit WH Mortgage Solutions at 101 W. Hillside Ste. 5
Get a thorough preapproval
Not only do sellers often prefer buyers who are preapproved by a lender making their offers more attractive, but a preapproved mortgage also can help avoid any hiccups down the line.
With a “Real” preapproval, a mortgage banker will pull your credit report and submit supporting documentation of income and assets to their automated underwriting system. Give your loan officer as much information as possible allows the bank to give you more accurate terms based on your actual credit score, debt obligations and income instead of relying on your estimates. It also puts you ahead of the process when you finally contract a home and will help you close faster.
Maintain your credit profile
In the months before your home purchase, avoid changing your credit obligations, especially between a preapproval and the closing of your new home. It could hurt your credit score in a way that would raise the interest rate and fees related to your loan, or at worst keep you from qualifying all together.
Don’t close any credit cards, keep balances on your credit cards at 30% of your credit limit or below. Don’t make any large purchases like buying furniture or a new car—this could affect your debt to income ratios and disqualify you for the mortgage.
Gather and keep every piece of financial paper in the two months leading up to buying a home such as pay stubs, bank statements for savings, checking and investment accounts, W-2s, and tax returns from the previous two years. Putting these documents in PDF format will make it easier to send to your mortgage banker.
Don’t move money around
In the months leading up to our home purchase, keep your bank account as simple as possible. Avoid moving money from one checking account to another. Don’t cash in on investments from stocks, retirement accounts or CD’s. Otherwise, you will create a huge headache for yourself as you try to show the mortgage company the paper trail of where the money came from.
Prepare to write letters of explanation
The relatively new underwriting guidelines require lenders to scrutinize every corner of your financial life. Don’t take offense, they do this to every borrower and offer the simplest explanation possible.
Get your gift early
If a family member is gifting some or all of your down payment, make sure it’s deposited to your account two months before you apply for a mortgage to avoid having to document and source the large deposit. If that is not possible, do not deposit the gift at all; get a gift letter and have the gift donor wire the gift to the title company the day of closing. NEVER deposit large amounts of cash to your checking account- cash deposits are not allowed to be used for down payment on either FHA or Conventional financing.
Self-employed? Plan ahead even more
Self-employed borrowers have a higher hurdle to overcome after stricter mortgage requirements went into effect in 2014. The rules require documentation of income that include two years’ worth of tax returns.
Self-employed borrowers should plan to take fewer deductions the years before buying a house to boost their overall income.
Know your refinance magic number
If you’re thinking about refinancing your home, figure out what mortgage rate you need. It’s not an easy number to calculate because you need to look at a host of factors regarding your loan, including what you want to get out of the refinance. Talk to a mortgage professional about your goals and what it would take to refinance. Your mortgage banker will help you find the rate that benefits you most.
Pay less mortgage insurance
Mortgage insurance premiums vary according to credit score and size of down payment. Private mortgage insurance with good credit scores are generally more affordable than FHA premiums. Ask your mortgage banker to give you loan worksheets showing both FHA and Conventional financing. You should also inquire about using a 2nd lien to avoid paying mortgage insurance all together and gain equity faster on your overall mortgage.
2106 Unreimbursed business expenses
There is a relatively new form that tax preparers use to increase your refund on your tax return called form 2106 unreimbursed business expenses. The expenses on this form will lower your usable income dollar for dollar when qualifying for a loan. Before you file your tax return next year, show it to a mortgage professional, they can tell you how your return will affect your approvability.