By Dian Hymer
Qualifying for a mortgage is a pretty straightforward process. You complete a loan application, provide the lender with verification of your income, and proof of your assets and debts. The lender reviews your debt-to-income ratios and your employment and credit history. If they're acceptable, you're approved for a mortgage subject only to a satisfactory property appraisal and title report.
If the process is simple, how come so many homebuyers complain that qualifying for a mortgage is such a hassle? The answer is documentation.
Some loans require more documentation than others. With no- and low-documentation mortgages, lenders often don't verify your income and down payment. Although these loans require less documentation, the lender may require that you sign a tax release form that allows the lender to get copies of your tax returns directly from the IRS.
The mortgages with the best rates and terms usually require full documentation and good credit. The more complicated your financial picture, the more documentation you'll be required to provide.
For example, if part of your qualification income is child and spousal support from a divorce settlement, you'll have to provide copies of your separation agreement and divorce decree. Your lender may even want to see verification that your spouse has a good history of making the payments.
Sometimes borrowers who are new on a job, or who are recently self-employed, have difficulty qualifying for a mortgage. But, if your new job is in the same, or similar, field as your old job, and there was no break in employment, you shouldn't have a problem.
First Time Tip: Borrowers who have recently changed jobs and moved to what might appear to be an unrelated field should write a letter of explanation to the lender. Explain how the job change fits into your plans for career advancement. If your situation is unique, explain the circumstances. Explain any breaks in employment.
Getting a mortgage if you're self-employed shouldn't be any more difficult than it is for an employed borrower. However, be aware that the lender will qualify you based on the income you pay taxes on. The lender will want to see your Federal tax returns for the last 2 years. For loan qualification, lenders use the after-expense income you reported to the IRS. If you're trying to qualify based on income you didn't report, you'll have a problem.
One of the biggest hurdles to getting a mortgage is bad credit. There's a loan out there for virtually everyone, but to get the best mortgages requires good credit. Many, but not all, lenders are using credit scores to qualify borrowers for mortgages. A credit score is derived from an analysis of your credit history. It indicates the likelihood you'll repay your loan. The lower the credit score, the less likely you'll get a loan.
Credit inquiries can lower your credit score. Let's say you go out and shop for a car just before you get approved for a mortgage and several car dealers each run a credit check on you. If these credit inquiries lower your score significantly, you might be denied the mortgage, even though you didn't actually buy a car.
Payment shock can also cause your loan to be denied, particularly if your ratios are marginal and your credit is shaky. Lenders don't like to see a big jump from your current housing payment to the projected mortgage payment.
The Closing: If you're having difficulty qualifying, apply for an adjustable rate mortgage (ARM). Lenders are often more lenient in qualifying borrowers for ARMs.
. Questions of a Do It Yourself nature should be submitted to our "