Think Like an Underwriter—How to Be Prepared to Apply for a Mortgage
You know you want to buy a house, but you aren’t sure what to expect with the application process. The good news is that it is a fairly straightforward process. Follow the guidance below to think like an underwriter and prepare yourself before applying for a mortgage.
What is an Underwriter?
An underwriter is an employee within mortgage lending that examines your loan application and determines whether or not a loan will be approved. They look at the financial history of the applicant and determine their credit worthiness. They place stipulations on the loan and give final approval once all of the conditions of the loan are met.
Get Your Finances in Order
The most important thing you should do before applying for a mortgage is to get your finances in the best place possible. You want to focus your attention on two key areas: your credit report and your bank account. For your credit report you want to minimize debt as much as possible. This will lower your debt to income ratio and increase your credit score, two things that will make your loan application stronger. Secondly, your bank account should have enough money to cover your down payment, closing costs, and have a few months reserves. Reserves are money to cover your mortgage payment in savings beyond what is needed for down payment and closing costs.
Gather Your Documentation
Once you are pre-approved for a mortgage you should start collecting the required documentation for your loan. Some of this is time sensitive and should be handed in once you are under contract. Other disclosures can be signed and returned right away to remove barriers once you are under contract.
Documentation you can expect to turn in is proof of income through paystubs and/or tax returns, and proof of assets through bank statements. Usually proof of income and proof of assets are time sensitive and underwriters will want the most recent documents, so this is something you’ll turn in once you are under contract on a property. If there are any discrepancies on your credit report, underwriters may ask for signed written statements about them, or proof that different debts have been paid in full.
When Should You Apply?
It is advisable that you get pre-approved for a mortgage before you start looking at homes. Many realtors require a pre-approval letter before they start showing homes. This also helps you to know what price range you need to stay within while looking at houses. When you are ready to make an offer on a house, a pre-approval letter will also need to be included with your offer to show sellers that you are serious about buying their house and are financially prepared.
The mortgage application process does not have to be overwhelming. With some thought and preparation, you will find yourself well on your way to closing on your mortgage and buying the property you want. Reach out today to find a Loan Originator to help.