Tips & Tools
Quick Mortgage Guide
Whether you are buying a castle or refinancing a condo, here are some easy actions you can take early on to simplify the mortgage process.
1. Try to avoid applying for additional new credit.
Applying for new credit (such as credit cards, auto or student loans, etc.) can negatively impact your credit score. Any changes to your credit score may hurt your ability to qualify for a mortgage. Additionally, lenders will require an overabundance of documentation to determine the effect of any new credit on your ability to pay the new mortgage.
2. Try to avoid increasing your debts.
Qualifying for a mortgage can often depend on your debt-to-income ratio, which can be negatively affected by high credit card balances and line of credit balance increases. Keep in mind that the lender will monitor the ratio throughout the mortgage application process, so try to save that splashy purchase for after closing.
3. Avoid closing old credit accounts.
Did you know that your credit score takes into account the total amount of credit you have available? Closing an unused or old credit account may seem like a good idea, but you can negatively impact your credit score by reducing the total amount of available credit when compared to your total debt.
4. Track any large or unusual deposits and withdrawals from your bank account.
You are required to provide at least two months’ worth of bank statements to the lender in order to qualify for a mortgage. The lender will ask for extra documentation for any large or unusual deposits and withdrawals from that account. Keeping track of those deposits and withdrawals, such as making copies of checks and deposit slips, will make it easier to explain those large or unusual deposits and withdrawals. Additionally, depositing or withdrawing those large or unusual transactions separately from smaller, regular transactions will make it easier for the lender or mortgage professional to track those transactions.
5. Avoid changing jobs during the mortgage process.
Changing jobs before or during the mortgage process will cause a delay. The lender will require at least one regular pay stub from your new job, which may not be available until weeks after you start that job. This delay can put other aspects of the mortgage qualification in jeopardy.
6. Keep track of non-employment income.
Documenting your receipt of alimony, child support, or other non-employment income is an important part of simplifying the mortgage process. Lenders will require full documentation of all income used for qualification. Keep copies of checks and bank statements. Additionally, the prompt deposit of alimony or support payments is important to help show a steady history. Finally, making income deposits separate from other transactions at the bank will help the lender calculate the correct amount.
7. Keep your income and asset documents handy.
In preparation for a mortgage application, it is important to keep track of all the documentation required by a lender. Keeping copies of your pay stubs, W-2’s, Federal Tax Returns, and bank statements will make gathering documentation quicker and easier when you decide to apply for a mortgage.
Quick Credit Guide
Are you thinking about buying a home? Use this guide to boost your credit score!
- Get one or two credit cards to grow your credit history.
- Debit cards do not count toward your score.
- Use the card/s each month.
- Pay them off each month.
- Pay on time.
- If you cannot get a credit card, get a secured card by putting money “down” on a bank card.
- Increase the credit limit on your cards.
- Keep track of your debt-to-credit limit ratio. You should aim for a ratio of 30%, but the lower, the better.
- Don’t close old, paid-off debt – it looks good on your record (like getting As in high school)
- Pay off disputes and then fight them (cable companies, medical bills, etc.).
- Limit inquiries on your credit report. · Monitor your credit – www.annualcreditreport.com can give you all three bureaus once a year (checking one bureau every four months will provide you with an idea of how your credit score is doing).
Using Support Income to Qualify
In order to use support payments as qualifying income, you will need:
1. Separation Agreement
- A signed Separation Agreement or Court Order is required.
- The Agreement must be complete and fully executed. It does not need to be notarized or recorded.
- It must reference the exact amount of support and timeframe of payments.
- The amount of support must be a specific number and not a percentage of the payor’s income.
2. Documentation of Support History
- The client must have at least a six-months history of support in order to close the loan.
- The support money needs to come from an account in paying spouse’s name only.
- The support money needs to be deposited into an account in receiving spouse’s name only.
- Each support payment should be deposited separately from other checks.
- Support can begin before the Agreement is signed as long as the payments are similar to the support per the agreement.
3. Documentation of Continued Support
- Support must continue for at least three years from the mortgage application date.
- If different amounts will be paid during the three years, the lowest amount will be used to qualify.
- Support must be in the form of a monthly payment. It cannot be a lump sum or annual payments used as qualifying income
- Child support can be grossed up by 125% for qualifying purposes. Spousal support stipulated in agreements starting in January 2019 can also be grossed up to 125%.
Rent vs. Buy Calculator