Back in the day when you wanted to purchase real estate, if you were working, and had money to close on the home and smiled at your banker, your chances of getting a mortgage loan were fairly high. In some instances this is still the case, but by and large mortgage loans are more and more challenging to secure. Lenders are looking at and requiring astronomical amounts of information to be submitted with your loan application. What this means to you is you need to be well prepared for the process to take longer both for you to gather all of the additional information and for the lending institution to review it all and seek additional home buying advice.
When your buying a home with a loan, you should be prepared to provide pay stubs for a certain amount of months, bank statements for a few months, tax returns for up to two to three years, and have your employment verified in the beginning of the process as well as at closing. The minimal credit scores for a home loan are fluctuating greatly but usually bounce around in the 600’s for an FHA loan. You should check with your lender for today’s requirements for credit scores. Also, your total debt to income ratio is measured to see if you can stay under their magic number which is a percent and usually can’t exceed the high thirties. You want to avoid any costly mistakes, so do your research.!
Why this information is important for the lender to collect is so the lender can sell your loan easily. The screening process is crucial for them and ensuring that the underwriter of the loan was critical of any risks. If you’ve closed on a loan in the last decade or so you probably noticed that one lender funded your loan and by the time the first payment is called due, you get a letter saying your loan was sold off and you are to pay the new lender.
Since our real estate housing crisis, lenders have been even very stringent in the requirements because if a loan goes south now they are going to exhaust all efforts to find out why. Investigating any possible reasons why this loan could not be paid in a timely manner is common practice now. They will review everything from the underwriting process to financial records submitted that were possibly fraudulent. In the end, it is inevitable that the lenders generally get their clocks cleaned on homes in default that go into foreclosure and they quite simply aren’t in a position to risk their capital on a bad loan.
At the end of the day this sounds like a lot of work but the bottom line is, the advanced requirements are to protect the banks interest in ensuring the loan can be paid off. It also protects your best interest to ensure that you do not get in over your head on a loan that has no chance of being paid and sending you into foreclosure.
If you have any questions about your home purchase or would like more information on how to contact a lender, please call Ewen Real Estate today (623) 824-6274.