LOVELAND – As a home buyer, the mortgage application and approval process can be a bit stressful. There are many different issues that can pop up, some that may have been avoided had you known ahead of time that it could be a problem. To avoid potential issues and delays with your future mortgage application, keep these tips in mind.
File tax returns promptly
Lenders will review your tax returns for the last two years (and in some cases, even more). They will compare your W-2 forms, tax return copies and tax transcripts from the IRS to ensure that the figures all match up. To avoid delays, make sure that you file your returns promptly and that the figures are accurate. If you need to amend a return, do that as soon as possible. It takes time for the IRS to update their system with anything that you mail in, so waiting for their system to reflect the correct information could result in a delay in your loan being approved.
If you owe money for taxes, pay it quickly and in full. A remaining balance will cause issues with your loan. If a payment was made only recently, you may be asked to provide verification. You may request a copy of the cancelled check from your bank and print an account statement from the IRS website.
Don’t incur new debts
Your assets and debts play a major role in loan approval. Specific figures are included in your loan application. Many of them are pulled from your credit report. It is important that your debts do not increase between when you apply for the loan and the scheduled closing. Lenders will actually pull your credit again right before closing to ensure that your figures haven’t changed. Incurring additional debt may disqualify you for the loan!
Keep good records
If you have any large deposits or unusual activity in your bank accounts, be sure to keep good records. This may include making copies of checks before you deposit them. Loan underwriters will often inquire about unusual items and ask for documentation. A letter with detailed explanation may be required on top of other documentation.
Avoid co-signing for other people’s loans
Co-signing for someone else’s loan does make you financially responsible for that debt. Therefore, it can work against you when applying for a home loan. That debt may be excluded in your calculations if you can present verification that someone else made payments on that loan for a certain amount of time (i.e. 24 months) and that payments were made on time. If you plan to buy a home fairly soon, it would not be a good idea to co-sign for someone else since you would not be able to provide payment history for the appropriate length of time.
Mortgage standards change regularly and every home buyer’s situation is different. Therefore, the potential issues that may arise are often unpredictable. However, you can avoid some of the more common mistakes by being educated about what lenders review. Above are just a few common examples. Your real estate agent may be able to provide additional tips based on his/her experience and recent transactions.
By Suzanne Plewes, RE/MAX Alliance