Vail Valley: Here are some hints for a successful mortgage application
As many locals have recently discovered, getting approved for a loan these days is far more stringent than it once was. Gone are the days of stated income qualifications, when a good credit score and adequate equity would assure a prompt approval.
While some loan applications can never be approved under the current guidelines, many people are finding a way to make it work. Some guidelines for full documentation loans are actually quite a bit more liberal than they used to be. Preparation for your loan application can often make the difference between success and rejection.
First, you must always be scrupulous about monitoring your credit report. A late payment on a revolving installment account could knock 50 points or more off your score. If you have a 30-day late payment on your mortgage account you might find yourself ineligible for a new loan for up to a year, regardless of your other qualifications.
A good credit score gets you a better rate these days as well. Nearly every loan program is heavily tied to credit scores. Someone with a 740 score might get as much as a half to 3⁄4 percent better mortgage rate than someone with a 660 score. Many programs that would once accept a 620 score are now calling for a 680 or better score.
One way to help your score is to pay down revolving credit balances to at least half your credit limit. Try also to keep your overall revolving debt below half of your credit limits.
Next, you might want to talk to a lender to find out what kind of taxable income you might need to show to either refinance or purchase the home of your dreams. Acceptable debt to income ratios are generally higher than they were a year ago.
If you want to make a rough calculation of your own debt to income ratio and have your W-2 forms, just add up your housing expense including your payment, taxes and insurance and add your monthly minimum payments on all other debts (excluding utilities and things like car insurance) and divide into your gross monthly pretax income.
If you are self-employed or commissioned, take your adjusted gross income (the bottom line of page one on your 1040 tax return) and add back half of the self-employment taxes you paid and divide by 12. That number is your monthly gross income for qualifying purposes. If you have physical deprecation on real estate or office equipment you can likely add that back into the bottom line.
If your debt to income works out to be below 55 percent of your income going to service your minimum debt payments, you may be qualified. If you think you are close but not sure a lender can evaluate the numbers for you and confirm.
Beware, though – some loan programs limit debt ratios to 41 percent. These usually kick in if you have less than 20 percent down payment or equity in your property. There may be exceptions to this rule on a case-by-case basis.
One of the interesting impacts of the mortgage meltdown has been the decrease in loans done over the Internet. The mortgage business is much more localized and personal today than it was a few years ago. It’s much easier to find a local lender and sit down face to face to work out the details and discuss how to deal with any challenges that come up.
Chris Neuswanger is a loan originator with Macro Financial Group in Avon and can be reached at 970-748-0342. He welcomes mortgage related inquiries from local readers.
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