Mortgages

During the mortgage application process you will need your driver’s license, Social Security # or Tax ID #, contact information, employment information, previous employment information, primary reference information, and current assets. It is also important to know the loan request amount, purchase price, estimated property value, type of mortgage, and the property address.

While it is difficult to increase your score over the short run, here are some tips to increase your score over a period of time.Pay your bills on time. Late payments and collections can have a serious impact on your score. Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score. Reduce your credit-card balances. If you are “maxed” out on your credit cards, this will affect your credit score negatively. If you have limited credit, obtain additional credit. Not having sufficient credit can negatively affect your score.

To correct any errors on your credit report, you must write to the credit card company and explain the error. If the creditor concurs that an error has occurred, the credit card company must report and correct the error to the credit-reporting agency.

Pre-qualification is normally determined by a loan officer. After interviewing you, the loan officer determines the potential loan amount for which you may be approved. The loan officer does not issue loan approval; therefore, pre-qualification is not a commitment to lend. After the loan officer determines that you pre-qualify, he/she then issues a pre-qualification letter. The pre-qualification letter is used when you make an offer on a property. The pre-qualification letter informs the seller that your financial situation has been reviewed by a professional, and you will likely be approved for a loan to purchase the home. Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is submitted to a lender’s underwriter, and a decision is made regarding your loan application. When your loan is pre-approved, you receive a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a home. Pre-approval can also help you negotiate a better price with the seller.

A rate lock is a lender’s promise to “lock” a specified interest rate and a specified number of points for you for a specified period of time while your loan application is processed. During that time, interest rates may change. But if your interest rate and points are locked in, you should be protected against increases. However, a locked-in rate could also keep you from taking advantage of price decreases. There are four components to a rate lock, a loan program, an interest rate, points, and the length of the lock period. The longer the length of the lock period, the higher the points or the interest rate will be. This is because the longer the lock, the greater the risk for the lender offering that lock.

Loans where the borrowers’ down payment is less than 20% often require mortgage insurance, which can be provided privately or publicly. Conventional loans requiring MI are insured by private mortgage insurance. FHA loans are those whose MI is provided by the Federal Housing Administration, a public, government program backed by taxpayers. Both mortgage insurance options have premiums, often paid by the borrower. Each program has advantages and disadvantages depending on your unique situation.

In order to secure a loan, you will need a copy of the purchase contract or offer to purchase and all addenda (signed by buyer and seller); past 2 years’ tax returns and W-2s; past 2 years’ employment history; last 3 consecutive paycheck stubs (5 if paid weekly); name, address, and phone for past 2 years’ residence(s) and landlord(s) (if renting, evidence of 12 months’ rent payments); last 3 months’ statements for savings, checking, CD, money market accounts; recent statement on retirement accounts (IRA, 401k, 403-B, Annuity, etc.); monthly payments and balances on all open accounts; proof of all additional income; divorce decree (if applicable); and bankruptcy schedules/discharge papers (if applicable). By having the information available, you will save time and avoid delays, additional documentation may be required, depending on the circumstances of your loan.