Critical Advice for Getting a Home Loan - Part 1

Published by peter | Filed under Real Estate

A recent Wall Street Journal article abut the first-time homebuyer credit cautions buyers under contract to wait until after closing before purchasing appliances, furniture or similar items on credit. The article notes that some mortgage lenders are running credit reports on closing day, and even an additional credit inquiry (let alone a purchase) may raise a red flag that could require additional documentation and potentially delay closing.

We know how important the mortgage process is for more than 80% of our customers, so we thought we would share some insights regarding how lenders view credit to ensure a smoother mortgage experience. I know that when I am a customer for a service that I rarely utilize, I appreciate understanding “how it works” as much as I need to trust the professional with who I am working.

Lenders need to know: can you afford the payment? Before offering a loan, the lender examines debt-to-income (DTI) ratios. If a buyer under contract takes on additional debt, then that could change the ratio—potentially making the mortgage unaffordable. That’s a situation that both lenders and buyers want to avoid. Keeping your total debit-to-income as low as possible makes lenders feel more confident that you can afford the monthly mortgage payment.

Lenders make a loan offer based on 3 to 4 months banking history. By looking at a borrower’s bank statements over several months, a lender has a pretty good idea where the borrower’s money comes from and where it goes. An unusually large withdrawal or deposit before closing may require further documentation, so the lender knows the customer isn’t accumulating additional debt. In other words, a borrower will have to justify his or her recent financial past, so if you are thinking about buying a home soon, start planning now.