Temecula Home Loans: Qualifying for a Mortgage Loan

As a Temecula home loan specialist, I see a wide variety of customers.  Through the years, I can say that qualifying for a mortgage loan has always been somewhat of a pain. I can remember my dad complaining years ago about the “prying” that the bank would do any time he applied for a loan. That was back in the 1970’s and, although there was a number of years where things did become much easier, the reality today is that qualifying for a mortgage is not the same as it was a few years ago. The requirements for a loan have not only become more stringent, but satisfying the bank’s underwriting department (the people who actually approve/deny your loan) is often a frustrating experience.  However, by educating yourself on the process and knowing what to expect will definitely ease the frustration.  So what exactly are the requirements for a loan and how does one go about qualifying?  Here are some of the guidelines for a home loan and what you can expect when you apply.

Income Documentation

It may come as a surprise to you, but just a few years ago, you could have qualified for a mortgage loan without having to document any income. You might have paid a bit more for this privilege, but nonetheless, you could have done it. Today, forget about it! To meet the income requirements of a loan, you will need to plan on providing your last 2 years of federal tax returns (all pages and schedules) along with every 1099 and W-2 that you have received during the same time period. You are also going to need the last 30-60 days of pay stubs from your current job. If you have worked more than one job in the past 2 years, you are probably even going to be asked for the last pay stub from that job. If you work for someone who pays you “under the table” or if you are self-employed or have any difficulty at all proving your income, then you could have trouble qualifying for a mortgage loan.

Asset Documentation

This boils down to how much money you have in the bank and where did that money come from. Requirements for a loan dictate that almost any deposit into your bank account over $200 can be questioned and you may be asked to prove where that money originated. This becomes an interesting problem if you have a large number of miscellaneous cash deposits. Banks want to make sure that you did not borrow any of the money for your down payment, so when you are qualifying for a mortgage loan, they are going to look carefully at your bank statements- especially all of the deposits. If you just happen to have a bunch of cash that you are planning to use for your down payment, you better be able to prove where and how your accumulated the cash. You can not just show up at the bank with a suitcase full of money and expect to get approved for a mortgage loan. Asset documentation is responsible for many last minute loan denials as borrowers are unable to meet the asset requirements for a loan.

Credit Qualification

This is another one of those areas that has changed dramatically in the past 3-4 years. In 2004, there were actually lenders that allowed you to qualify for a mortgage loan even if you had a very recent bankruptcy. Predictably, those lenders are now out of business and the remaining guys are much tougher. The minimum requirements for a loan say that you must wait two years after a bankruptcy and four years after a foreclosure before you can qualify for a new loan. However, most banks have instituted more rigid guidelines. You’ll need to check with your lender for their bankruptcy and foreclosure requirements. In addition, any judgments, collections, and tax liens will almost always need to be paid in full. So what if you have great credit but your spouse has bad credit? Once upon a time, it wasn’t too tough to just leave the “bad” spouse off the loan. Now, qualifying for a mortgage loan independently of your spouse is a rare occurrence. Yes, it can happen, but lenders will almost always want to see credit reports from BOTH spouses. It has also become very common that you need to provide a written explanation to the lender for every negative item that appears on your credit report. If you have some derogatory history, you should plan on doing some writing if you are qualifying for a mortgage loan.

In conclusion, you should keep two things in mind when qualifying for a mortgage loan. The first is patience. You will be asked for “stuff” and then more “stuff” and then more “stuff”.  If you realize this up front and accept it, you’ll reduce your stress level.   Second, it is absolutely CRITICAL for you to be working with a  knowledgeable loan officer from a reputable company. The first hint of a problem is usually when a loan officer tells you “no problem”. The ever changing requirements for a loan mean that no deal is “no problem” in this market. So get with someone that knows the rules and you will save yourself a ton of time and frustration.