This week’s Motto Moment with John Kunkle will address ways to make the home-buying process easier and some things to avoid when preparing for or in the home-buying process.
Q: Sometimes it can be a challenge to create a smooth loan process, what are some of the pitfalls that cause strees and how to avoid them?
A: During the mortgage application process, Lenders evaluate one’s debt-to-income ratio, and incurring additional debt can impact one’s eligibility and borrowing capacity. Large purchases can also affect one’s down payment and closing costs funds.
Changing employment or income structure: When evaluating a borrower’s income, lenders typically prefer stability. Changing jobs or pay structures (such as becoming self-employed) during the mortgage application process can cause complications. Lenders prefer stable income and employment history, so avoiding significant changes is best until the mortgage is closed.
Opening or closing credit accounts can hurt one’s credit score. Opening new or closing credit accounts can lower one’s credit score due to the borrower’s capacity and debt-to-income ratio. Maintaining a
stable credit profile throughout the mortgage process is essential. Avoid applying for new credit cards, any loans, or terminating existing accounts, as these actions can have a negative impact on your
creditworthiness. Remember, the last thing your lender wants to hear is that one bought new furniture or a new car to celebrate a home they haven’t closed on. Waiting is hard, but it will be worth it on the closing day.
Ensure one makes all payments on time, particularly during the mortgage application process. Late payments can have a negative effect on one’s credit score and raise lender concerns. Maintain a perfectpayment record to demonstrate your financial responsibility. Lenders will do soft credit pulls throughout the process and monitor credit. If a late payment hits, it could result in one’s loan being denied, even after the process has started.
Inability to provide required documentation: When applying for a mortgage, one must provide various documents regarding income, assets, obligations, and employment. It is essential to submit all requested paperwork promptly and accurately. The process may be delayed, or the loan may be denied if the documentation is not provided. Some information the lender requires may seem redundant
or as if they ask too much from the borrower. There are regulations lenders must follow. Less than two years of residency at the same address, less than two years of employment with the same employer, or
being self-employed are some examples that can trigger additional requirements. The best advice is to provide the requested information quickly and ensure accuracy.
If one rents, the lender will require a VOR or verification of rent. This will go to the management company or landlord for them to complete, sign, and return. The lender will also request canceled checks to verify receipt of the payment. If anyone is paying rent in cash, stop today. One should always pay their rent by check and note in the memo line the purpose and the month the rent is to cover. Lenders will also request a VOE or verification of employment. This document request will be sent directly to current and often previous employers to verify dates of employment and earnings.
One’s credit score plays a significant role in determining your mortgage’s terms and interest rate. Before applying for a mortgage, monitoring one’s credit score and addressing any errors or problems is essential. If your credit score is lower than 620, take measures to improve it, such as paying down debts and making payments on time.
Anything less than 620 will prevent one from qualifying for down- payment assistance. Being self-employed versus a W2 wage earner can also impact the documentation request. As we have discussed in previous Motto Moments with John, the higher the credit score, the lower your rate and overall loan costs. Before house hunting, getting pre-approved for a mortgage can save time and provide a greater understanding of one’s budget. Not having a preapproval can cause delays and uncertainty in the home- buying process.
Here at Motto Mortgage, I will guide you through the process and provide tailored advice based on your unique circumstances. The final decision on the loan and rate depends on the individual and what will work best for their financial situation.
This has been your weekly Motto Moment with John. If you have questions or if I can help unlock the home of your dreams, give me a call at 479-621-3500. Let me preapprove you for your first home, dream home, investment property, or farm. A pre-approval letter makes one much more likely to accept your offer in this hot real estate market. I’m John Kunkel, your Motto Mortgage Loan Officer. Unlocking homeownership dreams one key at a time.
Motto Mortgage offices are independently owned, operated, and licensed. An equal housing
opportunity. John Kunkel NMLS 1-4-1-6-0-7-8, Motto Mortgage United Group 2-0-7-8-9-1-5, Motto
Mortgage Velocity 2-2-8-8-2-5-6, and Motto Mortgage Heritage 1-7-2-0-4-3-8.
