Mortgage Approval Dos And Don’ts

Apr 06, 2017

Very few things are worse for homebuyers than getting to closing day only for the sale to be halted because the buyer’s lender refused to approve them for financing. Mortgage approval is an important step in the path toward homeownership, a process that an experienced South Florida real estate professional can guide homebuyers through. Lenders will look at a number of things to evaluate whether or not to extend a loan. Below are key dos and don’ts of obtaining mortgage approval.

Do Have Steady Income

Potential borrowers should have consistent income that is guaranteed to continue into the future to assure lenders that they will be able to make monthly mortgage payments. Employees of a business are required to provide pay stubs and verification of employment on company letterhead. In the case of self-employed mortgage candidates, their income over the last two years will be averaged. Those who are self-employed or have had gaps in employment in the last two years must provide explanations and supporting documentation.

Don’t Change or Leave Your Current Job

Changes in job status could stall the approval process, so they are best avoided. Even a temporary shift in status, like one caused by a maternity or paternity leave, could result in the lender needing further employment verifications. If a change is unavoidable, lenders must be informed as soon as possible.

Do Have Good Credit

Credit scores are a key factor in determining whether a buyer will qualify for financing. A credit score that will likely guarantee mortgage approval needs to be at least 720 or better. Borrowers with lower scores can still get a mortgage (a minimum score of 580 is required), but they will have to go through harsher scrutiny from their lenders.

Don’t Leave Credit Report Disputes for the Last Minute

Many times credit reports will have some erroneous information that people will then dispute. However, lenders will not approve a loan until a dispute is resolved, and creditors can take up to 30 days before responding to a filed dispute. Prevent this kind of situation by verifying credit reports annually, so that errors can be fixed way before the home buying process is started.

Do Have Low Levels of Debt

Lower outstanding debt means lower minimum payment liabilities that need to be paid monthly. A mortgage payment will take a significant chunk of income each month, therefore lenders have to make sure that potential borrowers will be able to fit a mortgage payment into their monthly budget. The maximum amount of monthly debt payment should be 10 percent or lower of gross income.

Don’t Accumulate New Debt

Avoid making large purchases or applying for new credit cards (even store credit cards) before closing on a property. Soon-to-be homeowners often make the mistake of buying furniture before the home sale is closed. Right before closing, lenders will do a final check on buyers’ credit and outstanding debts. If there is any new debt, the approval process could be delayed.

Do Have Substantial Cash Down

An ideal mortgage candidate has low debt, good income, a high credit score, and many assets. Candidates should have at least 20 percent down payment for a house if they want to quickly get a mortgage. The more cash down buyers provide upfront, the lower their mortgage payments will be.

At Stein Posner, we pride ourselves with guiding home buyers through all the stages toward closing and homeownership. In search of a new home? Talk with a South Florida real estate professional today.