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Do not jeopardize mortgage approval

An integral element of the mortgage approval process is calculation of your debt ratio
Andi Peto-Selby

Efficient real estate agents will inform new home buyers the importance of the mortgage application process. It is equally important for the home buyers to sit down with the lender to review the course of action. Economic changes may have created new twists and turns experienced buyers are unaware of. You do not want to jeopardize the mortgage approval process by not understanding each step and requirements on your part.

Previous to obtaining a mortgage pre-approval, know your financial status. Calculate your funds for closing and down payment. If your money is in various accounts, telephone ahead of time to determine the timetable and process for access. Closings have been postponed because a buyer didn’t know it would take more time than realized to obtain their money.

Review your personal credit report. You are eligible to obtain a copy of your credit file from each of the three credit bureaus, Trans Union, Experian and Equifax, at no cost, once a year. The website is This will save you from any surprises. If there are errors, dispute each line item through the specific credit repository website.

Be knowledgeable in reference to the dollar amounts of your debts. An integral element of the mortgage approval process is calculation of your debt ratio. Add your minimum monthly payments together. Divide the sum by your monthly income. This percentage is your debt ratio. Lenders use this information to gage risk, stability and the ability to pay the new monthly house payment. It is also an indication of how much house you are able to afford. The less debt you have, the more room your budget will have for a higher mortgage payment. Do not make any additional credit purchases until after the closing of your new home.

Create a file to maintain documents. You may be asked for recent bank and investment statements, pay stubs, income tax returns, gift statements, and receipts multiple times. Lenders review these items for consistency and verification. The endeavor of producing, copying, faxing and/or scanning the requested items may get tedious and mundane when you are required to submit them several times. The exercise is easier when you have an organized method in place for locating the specific items. As the closing date draws near, do not pack these items onto a moving truck. Keep all documents available up to and including the closing date.

Acquaint yourself with the type of mortgage which will best suit your needs. The prerequisites will vary as much as the interest rates, terms and conditions. The mortgage loan officer will inform you of the available loan types at their specific financial institution. Just as each house is different, the offerings at lenders may differ, also. Understanding the repercussions of an adjustable rate mortgage (ARM) in comparison to a fixed rate mortgage will aid you with future financial planning. If you qualify for a VA mortgage, FHA mortgage or a conventional mortgage, understand the different conditions and interest rates for each.

A mortgage will require homeowner or home hazard insurance. When quoted a principal and interest payment, calculate the additional monthly cost for insurance if you will have an escrow account. Realize the cost of insurance may increase over the term of your mortgage. An escrow account will also include the taxes for your new home. If you have the option not to have an escrow account, the annual taxes and insurance will become your responsibility.

Read articles, such as this one, for information to assist you with prerequisites. Familiarize yourself with mortgage and real estate terms, such as earnest money, clear to close and escrow, as an example. A pro-active Realtor® will have ready resources and professional assistance to guide you. An informed consumer will have a healthier experience with a full understanding of the home loan progression. You don’t want to jeopardize the mortgage approval with a misunderstanding or inadequate information.

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