Let’s begin the odyssey of obtaining a mortgage with a history lesson.
Before the economy tanked in 2008-2009, getting a mortgage was no sweat. Lenders later got in hot water for pushing loans on people with poor credit. It turned out rather badly.
The repercussions are still felt today.
Getting a mortgage comes with a lot of red tape, seemingly more than ever before.
The proof is in the bank accounts.
Lenders now spend a lot of time tracing where the money you have comes from. If you’re a W2 employee with a better than a 680 credit score and a debit to income ratio below 43%, you probably won’t have too many struggles with underwriting.
If you are self-employed with multiple income sources, prepare to back up the money you have with detailed evidence of where it came from. Lenders are especially worried about money that is gifted. They need to show that you can afford your new home
(they got in a lot of trouble for not doing that previously).
Before completing a mortgage application or even strolling through an open house, you’ll want to know these things:
- Your monthly income
- The sum of your total monthly debt payments (auto loans, student loans, and credit card minimum payments)
- Your credit score and any credit issues in the past few years
- How much cash you can put down
- How much house you can afford
Beware of affordability calculators, there’s a lot of factors to consider. See What’s My Budget for more information.
The mortgage process can feel invasive and exhausting. Providing the documentation alone requires a lot of patience. Try not to take anything personally and provide what is asked for. You can expect pre-approval to go fast … when the offer is accepted and it’s time to schedule the closing, the work begins.