No doubt about it, applying for a mortgage can be a long and involved process that can leave you feeling drained and financially exposed. But it’s in your best interest to be transparent with your finances during this part of the home buying journey, particularly if you have issues that might hinder your acceptance. Fret not, though – there are ways to deal with issues that can come up.
One of the things that can happen is that an underwriter may ask for additional verification of your earnings after looking over your proof of income documents. One of the ways you can address this is by getting a written employment verification to detail your income. If you don’t have proof of steady income over the course of two years, you may seek out a lender who will accept alternate information in place of a two-year consistently documented history. Both of these steps may be very helpful to you if you’re freelance or on contract, and your income is affected by things such as overtime and bonuses.
You already know that your loan officer considers your credit report and credit score as they’re deciding whether or not you qualify for a loan, but did you also know they consider the amount of debt you’re carrying? For example, if you have more than a 45% ratio of debt-to-income, you’ll have to make some changes to be able to qualify. Some suggestions include reducing your mortgage payment, doing the same for your consumer loans, and consider revisiting your income to see if there’s a better way for you to handle all your financial obligations.
Another way you can increase your likelihood of mortgage approval is by paying down your debt. When you pay off your debts, often there’s a temptation to close your accounts – and that can lower your credit score. You may consider paying off your debts but keeping certain accounts open so that it shows your debt is paid, but the account is still available for use.
A short sale within the last four years can also affect the likelihood of a mortgage approval. You may have to show proof that the home has been sold, and you may have to forego a conventional loan and look into an FHA loan instead. If you’ve been financially linked to any other property in any way within seven years, those might show up as well – and if you’re not liable for those properties anymore, you might have to show documentation proving as such.
If you have any questions about this, your loan officer is on hand to help you. After all, they want what’s best for you – and your potential new home.