Approval Process
The Path to Mortgage Approval
Whether you’re a first-time home buyer or seasoned investor, the mortgage approval process can be an overwhelming adventure without a proper road map and good team in your corner. Updated program guidelines, mortgage rate questions and down payment requirements are a few of the components you’ll need to be aware of when getting mortgage financing for a purchase or refinance. Learn what you need to get qualified for a new mortgage loan.
Mortgage Approval Components
Mortgage lenders approve borrowers for a loan, which is secured by real estate, based on a standard set of guidelines that are generally determined by the type of loan program. The following bullets are the main components of a mortgage approval:
01. Debt-to-Income (DTI) Ratio
A borrower’s DTI Ratio is a measurement of their income to monthly credit and housing liabilities. The lower the DTI ratio a borrower has (more income in relation to monthly credit payments), the more confident the lender is about getting paid on time in the future based on the loan terms.
02. Loan-to-Value (LTV)
Loan-to-Value, or LTV, is a term lenders use when comparing the difference between the outstanding loan amount and a property’s value. Certain loan programs require a borrower to invest a larger down payment to avoid mortgage insurance, while some government loan programs were created to help buyers secure financing on a home with 96.5% to 100% LTV Ratios.
03. Credit
Credit scores and history are used by lenders as a tool to determine the estimated risk associated with a borrower. While lenders like to see multiple open lines of credit with a minimum of 24 months reporting history, some loan programs allow borrowers to use alternative forms of credit to qualify for a loan.
Learn More04. Property Types
The type of property, and how you plan on occupying the residence, plays a major role in securing mortgage financing. Due to some HOA restrictions, government lending mortgage insurance requirements and appraisal policies, it is important that your real estate agent understands the exact details and restrictions of your pre-approval letter before placing any offers on properties.
05. Mortgage Programs
There are government insured loan programs, such as FHA, USDA and VA home loans, as well as conventional and jumbo financing. A mortgage professional will take into consideration your scenario to determine which loan program best fits your needs and goals.
Learn More06. Pre-Qualification Letter
Getting a mortgage qualification letter prior to looking for a new home with an agent is an essential first step in the home buying process. Besides providing the home buyer with an idea of their monthly payments, down payment requirements and loan program terms to budget for, a Pre-Approval Letter gives the seller and agents involved a better sense of security and confidence that the purchase contract will be able to close on time.
Approval Process FAQs
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I was pre-approved, but after I found a home and signed a contract my lender denied my loan. Why is this a common trend that I hear about?
There are hundreds of moving parts with a real estate purchase transaction that can impact a final approval up until the last minute, and then after the fact in some unfortunate instances. It’s important to make sure your initial paperwork is reviewed and approved by an underwriter as soon as possible. Stay in close contact with your mortgage approval team throughout the entire process so that they’re aware of any delays or changes in your status that could impact the final approval.
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What happens if I can’t find a home before my pre-approval letter expires?
Depending on your mortgage program and final underwritten conditions, you may have to re-submit the most recent 30 days of income and asset documents, as well as have a new credit report pulled. Worst case scenario, the lender may even require a new appraisal that reflects comparables within a 90 day period.
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Do I have to sell my current home before I can qualify for a new mortgage?
Yes, no, and maybe…If you are in a financial position where you are qualified to afford both your current residence and the proposed payment on your new house, then the simple answer is no!
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