The Mortgage Application Process: What to Expect

This guest post explaining today's mortgage application process is written by Mark Zachary. Mark has been in the mortgage business for 15 years, holding many different positions. He has owned his own mortgage brokerage company, been a VP of Mortgage Operations for a well-known new home builder, and served as Regional VP for the largest mortgage lender in the country. You can learn more about Mark on his website with Supreme Lending.

Back to the way it should be

So what has happened to the mortgage business over the past two years? “You mean I now have to document my income and assets?” “That’s not the way I did it when I bought my first home five years ago!” Yes, you do have to do all of those things, plus some others. Some of it, you have to do several times—especially if you’re building a home that may take months to complete. It’s back to the way it should have been and the way it should be.

The return of the traditional mortgage

So you bought your first (or second) home on one of those stated-income or no-income asset loan programs. I bet you can’t find many of those loan programs around any longer. What about those sub-prime loans that were given to anyone that could breathe? Nope, they’re gone too. Now days, it’s pretty much full doc or “no loan for you!” Why, you ask? Unless you’ve been under a rock for the past few years, mortgage foreclosures and defaults are at an all-time high. More are expected in the coming months. However, the trend appears to be slowing somewhat.

What to expect when applying for a mortgage

So what should you expect now in the mortgage processing experience? I’ve listed a few things you should prepare yourself for while working through the mortgage process. The process is still not difficult. It really never has been. Consumers just got used to having to supply nothing but a signature. Now, the industry is back to documenting and actually providing proof that you can, in fact, pay the loan back. That’s not a bad thing. After all, you don’t want your block littered with foreclosures and defaults that drive your value down and thus eat away your equity.

Here are 8 things to expect when applying for a mortgage now:

1. Be prepared to document your income. Lenders require at least 30 days worth of pay-stubs for all borrowers. Lenders will also need your last two years’ w-2 forms. During the process, keep all paystubs in a “Mortgage Processing” folder.     
2. Be prepared to document your assets. You’ll need your last 60 days’ worth of bank statements. Get ready to explain any unusually large deposits. You’ll need quarterly statements from retirement accounts. During the process, keep all bank statement and asset statements in a “Mortgage Processing” folder.
3. Self-employed? Get two full years of tax returns and a year to date profit and loss ready.
4. Credit scores minimums have risen. Minimum credit scores are currently 620. That’s a huge change from before. I witnessed loans approved with scores under 500 back in the boom. Guess which ones are more likely to go into foreclosure or default? You got it. There are some programs that allow scores down to 580, but very few of those are actually being approved these days.  
5. Check your credit. Statistics show that 7 out of 10 credit reports have incorrect or inaccurate information that is having a significant impact on your scores. Know your scores and what your credit report reveals about you. Remove outdated and inaccurate information.
6. Expect verbal verifications of employment. Expect that within three days of closing, the lender will call to verify you are still employed. They normally call the human resource department before sending closing documents. Expect that they will call yet again right before funding. Lenders must make sure you still have the same income and thus qualify for the loan they are about to give you.
7. Expect to write letters of explanation. These have proven to be frustrating to many borrowers. They are required, so expect them. If you bounced a check to your local grocery store and you have an “insufficient funds” comment on your bank account, expect to write an explanation letter. If you changed jobs or careers in the last two years, expect to write an explanation.
8. Pack your patience. Applying for a mortgage can be a time consuming process if you’re not prepared. Expect about a 20-30 day, or even longer, closing schedule. Be prepared. Be responsive to your lender when asked for documentation. 

Put yourself in the place of the lender. If you were to loan someone $150,000, you’d want to have a pretty good idea that your borrower was going to pay you back right? You’d want the home to actually be worth what you’re paying for it and you’d want to know you had a clear title on the property. The lenders want the same assurance. It’s back to the way it was and the way it should have been all along. Prepare, expect, and respond and the process will go fine. Happy mortgage and house hunting!