Understanding Your Available Mortgage Options

by Randy Zimnoch

There is a lot that goes into getting the best mortgage for your purchases. Gone are the days when you could walk into your local bank or call your local broker and have multiple options to choose from. There are still loan programs available, but many investment programs have gone by the wayside. If you are looking for lender financing, you need to have an idea of where you stand before you get started. Not knowing the mortgage options that are available can cost you time, money and even the ability to close on a deal because you didn’t act quickly enough.

The loan process starts with your credit score. Without at least a serviceable score, everything else will be for naught. Scores range between 350 and 850, with 720 being the floor for most investment programs. It is easier than ever to get access to your credit score online. It is important not only to know your score and see where you may be able to improve it, but to recognize if there are any items that are pulling it down. Fraud and identity theft are big problems and could take months to rectify if they are not caught in time. Even if you aren’t actively looking for a mortgage, it is a good idea to stay on top of your credit score. You never know when a good score will come in handy.

After your score, you need to know just how much qualifying income you have. If you have multiple properties and are banking on using the rental income, you will be surprised to know you won’t get full value. The same goes for any self-employment income that isn’t on the books. Lenders use your adjusted gross income and only the rental amount that is on your tax return. If you write off a large amount of your income, it may be good during the course of the year, but not if you are looking to get approved for a mortgage. Look at your last two years of tax returns and get the average income in addition to any year to date income you may have. If you need help, call your mortgage broker or lender to get the exact number. This is a critical step in the loan approval process.

Having money tucked away under your mattress to use as a down payment will not work to get your loan approved. Any funds that you will use need to be placed in whatever account you are using for at least sixty days prior to closing. This is referred to as seasoning the money. Without this, funds will not be able to be accessed. You can still use them, but you may have to wait until the sixty days is up. Any gift funds, 401 k withdrawals and anything that may add debt needs to be explained and the new monthly payment acknowledged. Having the money available at the closing is not enough for lenders. Failure to know and follow this step can cause you to have to wait for approval and can cause you to lose out on a property.

Some lenders have guidelines with the number of investment property owners in a condo complex, some will cap you on the number of allowable mortgages while others have different down payment restrictions given the number of units the property is. It is important to know exactly what you are buying and what you are currently approved for. Your single-family approval with 10% down is not the same on a three family property. The same goes for any prequalifications that are over a few months old. Your credit score can change every thirty days. If it is not up to date, your lender will ask for a new credit report. If the score goes under their limits, you could have trouble getting approved.

If you know your situation, it will help you understand which mortgages to pursue. If you are aware that your debt-to-income ratio is high or you have a below average credit score, your options may be limited. This should lead you to a mortgage broker that deals with more banks and has more options. If you know your score is 800 and you have no debt and high useable income, you can assume you will have mortgage options and can pick and choose your interest rate and fees. Most lenders in today’s markets are very close, but it still may pay to shop around.

There is a perfect loan for almost every situation. You don’t need to be a mortgage expert or finance major to know where you stand in the approval process. You never know when an opportunity will fall into your lap. By the time you find someone to work with and get your approval in order, it could be too late. Stay on top of the process by knowing what the process entails and what is expected of you. With fewer loans, there are less lending options. However, the service should be much higher. The approval process can be complicated, but if you have everything you need at the ready it doesn’t have to be.