Stories abound about people who couldn't qualify for a mortgage. The problem, say experts, is that people aren't providing the bank with all the documents that they need to prove that they will be able to manage a mortgage.
"You hear it all the time, 'Oh, nobody can get a loan,'" said Todd Huettner, principal of Huettner Capital and a mortgage broker in Denver, Colo., "but it's not true." The increased amount of paperwork means that there's a greater chance you might overlook something that causes your loan to be denied, says Huettner, but if your financials are strong and you fill out the paperwork correctly, you can get a loan.
Huettner said that he had one client who, because his credit cards had recently been stolen, had opened new accounts. It happens everyday, but that's something that sends up red flags when you're attempting to obtain a mortgage. "Opening new credit card accounts right before you apply for a mortgage makes a bank nervous," said Huttner. "The client didn't realize this would be an issue -- he paid off his credit cards, and thought that he was in good shape. Knowing the circumstances, I was able to address it proactively, before the underwriter could deny the loan."
What potential homebuyers need to keep in mind, said Huettner, is that getting a loan is not impossible. The key is to know how to approach getting pre-approved for a mortgage. Here are some tips for how to get pre-approved for a mortgage.
1. Find the right person to work with
"A lot of buyers start on the Internet, which is very convenient," said Steven Slotnick, a mortgage broker with Prospect Mortgage in Maplewood, N.J. "You can do the calculations yourself, and you can play out some what-if scenarios, and get an idea of what you can afford. But it's impersonal. And if you have anything other than the most basic financial situation -- been in the same job for several years, one savings account, one checking account -- then you might have issues you don't even know about that could hold up a loan."
Slotnick said that the best recommendations for a mortgage broker or loan officer will come from someone who has successfully obtained a mortgage. "If they were successful, someone did something right," he said. "Ask them who they used." Realtors and real estate attorneys also can provide recommendations. The important thing, said Slotnick, is to find someone who's asking the right questions.
"If they're asking the important questions that go beyond what your income is -- what kind of work do you do, how many children do you have, how long do you intend to stay in your house -- then they probably have your best interests at heart."
Those questions, he said, help the mortgage broker or loan officer understand what your monthly expenses are and how much of a mortgage you can really afford, which is the first step toward pre-approval.
2. Assemble the correct paperwork
Once you find someone whom you can work with, you will need to start gathering all the pertinent financial information. You can actually start pulling this together before you're ready to go through the pre-approval process. The important thing is to know where all the information is.
According to Slotnick, at minimum you will need to be able to produce these documents to start the pre-approval process:
- One month of paystubs
- Two years of W-2s, or two years of tax returns if you're self-employed
- Bank statements from the last two months
- If you are currently renting, proof of the last 12 months of rent payments
"With these documents, I can pull a credit report and get the complete picture of someone's financial situation," he said. "If they have a more complicated financial situation, as when someone is involved in a business partnership, the process gets more complicated. Then, we will start asking for more documents."
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3. Create a budget
Your loan officer or mortgage broker should also help you create a budget. "A good mortgage broker will look not just at your income, but your expenses, and find out how much you can really spend on a home," said Huettner. "When we go through the finances, I ask the buyer what they feel they can afford each month. And I make sure they understand what they will need for closing costs and escrow, based on the mortgage they want. All of this will help a buyer determine how much of a mortgage they really can afford."
4. Get more than one quote
You should definitely shop around for a mortgage, advises Slotnick. "The borrower should get two or three reputable quotes," he said. However, there is no need to go through the entire scenario more than once. Instead, a buyer can contact other lenders with the information that they were pre-approved at a certain rate for a certain amount, and ask how other lenders compare. "Ask for their rates and closing costs, and see if there is a difference," said Slotnick. "And if there's a big difference among lenders, make sure you have those quotes in writing before you commit to one over the other."
Slotnick says that a buyer can expect pre-qualification within 24 hours and a full mortgage commitment in about 10 days, he said. In the end, though, it's the ability of the borrower to produce the right documents and answer all the questions that need to be answered. "The borrower's thoroughness determines the length of the process," he said.
"Even for people who have a very straightforward financial situation, it's the fine details that can trip you up," said Huettner. "You have to work with someone who is knowledgeable enough about the process that they will ask the right questions and be able to identify red flags before they get to the underwriter."
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