Lately I have become more familiar with the mortgage industry than I would have preferred.
Since 2002, we have taken out four mortgages, 3 of those since 2009. (We've had lots of unexpected moves -- dang economy.)
Add to that the time I spent in the mortgage industry as an originator, and I know a bit about making the mortgage application process easier to get through.
I know how difficult and confusing it can be, even when you've gone through as many of them as I have. I sincerely hope that you won't have to go through what I've had to deal with, but perhaps what I've learned can help you manage the process more easily when the time comes.
With that in mind, here are my top five tips for navigating the mortgage world:
1. Be Organized.
I'm not just talking about the details on your mortgage and loan; I'm talking about all of your finances.
The underwriters that approve your mortgage have gotten pickier and about what they want to see. This stems from all the changes that came about from the housing crash. Their license and job is now on the line if they don’t look at everything, so be prepared to pull up what may seem like random documentation.
In 2011, we had to prove that we paid cash for a car and did not take out a loan. How did they know that we even bought a new car? We took a deduction for the sales tax on our taxes. So by being organized with your finances, you can quickly get your lender exactly what they need.
2. The More Cash You Have, the Better.
This includes your down payment and your emergency fund. Many mortgage companies now require six months of payments in a bank account as an emergency fund. Plus, the bigger your down payment is, the more your bank likes the loan because your loan-to-value is low. Loan-to-value is the percentage that your loan amount is to the value of the home. The lower this number, the happier the bank is because they have less risk in a property when the value changes. So if the loan amount is $100,000 and the house is valued at $150,000 your loan-to-value is 67%.
The banks aren't the only ones that like seeing larger down payments. The sellers are also more likely to be comfortable with your offer the more you are putting down. That's because the seller sees the sale of the house as less likely to fall apart in the end if the buyer makes a bigger deposit.
[If you're ready to buy a home, use our Mortgage Calculator to see what your monthly principal and interest payment will be.]
3. Start Early.
When you find the right house, you don't want to have to wait on a pre-approval. Begin the process before you ever start looking for a home.
Plus, as underwriters have gotten more and more detailed, they've begun to take longer and ask for more information. This also includes appraisers taking more time, as they want to make sure they get the value of the property right. With our last house, the underwriter did not like the appraisal, so they ordered another one from a different appraiser. This added another week to our loan time.
Consider having full credit approval before making an offer. Most pre-approvals are simply a conditional yes -- 'If this scenario happens, then we will give you a loan.' However, if you take the time to get a full approval, you can be sure of your qualification and move quickly once the house is determined. It's just one less thing you need to worry about while you arrange for inspections and appraisals and other things needed for closing.
This makes the whole process smoother, and as with having more cash down, it makes you more attractive to the seller.
4. Don’t Hide Anything Because They Will Find It.
This applies not only to financial issues but also with your property.
When I was doing mortgages, the company I worked for did not do mortgages on mobile homes, even if the home had a permanent foundation. I had one client that never mentioned that the home being sold was a mobile home with a foundation. After the client paid for the appraisal and I saw what was to be sold, I had to tell the client we could not move forward.
They were out their application fee and had to go find another lender.
Put everything on the table and there will be fewer surprises down the road.
[InvestingAnswers Feature: 5 Ways Your Dream Home Can Become a Nightmare]
5. Laugh Often.
This is a stressful and time-consuming process; if you are not somewhat laid back and understanding, it can be miserable for you.
Here's an example: I am self employed and have no employees. However, the underwriting team from our last mortgage kept calling me to confirm my employment status. They also did not like that I had run my profit-and-loss statement for them for the entire year instead of to the exact date I turned it in. So even though the numbers did not change, they needed a new one with different dates on it. It was annoying, but it is something you have to be able to just laugh at and move on. After all, so many of these quirky, little things can occur, and if you can't just roll with them, they can drive you crazy!