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Getting approved for a mortgage can be daunting, especially if you don’t know what to expect and what lenders are looking for. The good news, according to Tom Heath, Rancho Sahuarita resident and vice president of mortgage lending at Bancapital Home Loans, is that mortgage lending can be boiled down to some basic rules of thumb and common sense behaviors.
Below are Tom’s tips on mortgage lending, in the second of a four-part series on home-buying.
Although credit is tighter now than it was before the Great Recession, criteria for mortgage lending has not changed much over the years. When deciding whether you are a safe bet for a loan, lenders still look at the 3 C’s:
- Character, which is your intent to repay the loan and is determined mainly by your credit history;
- Capacity, your ability to repay the loan as determined by monthly debts versus monthly income; and
- Capital, the amount of money you have for the down payment, closing costs and reserves after the loan is complete.
If you are ready to obtain a loan, keep these five rules of thumb in mind:
1. Avoid major purchases that could affect your credit or debt-to-income ratios. For instance, if your primary credit card has a $10,000 credit line, now may not be the best time to charge a $7,000 vacation.
2. Keep good records of deposits, especially those that are not consistent with your normal patterns. Underwriters will ask for explanations of funds that are deposited into your accounts without a clearly identified source. Payroll, IRS refunds and similar deposits are not questioned. “Counter Deposit,” “In Store Deposit,” and “Cash Deposit” are types of transactions for which underwriters may ask for clarity.
3. Know your credit. AnnualCreditReport.com can give you access to your free report, as required by law, for you to verify accuracy of reporting. Obtaining your credit score itself will cost, but paying to know the number is probably not worth the price if shopping for a home. The only accepted credit score for mortgage lenders is one generated by FICO® and that formula can vary based on the reason for the credit inquiry (i.e., home loan versus car loan). If the credit report is accurate (your accounts and balances all check out), work with a licensed mortgage professional to get your score.
4. Know your area. There are different loan programs and down payment assistance options in some areas. If location is fixed or flexible, make sure your REALTOR® and lender know so they can help find the best financing options on the best home.
5. Interview your team. It is a good idea to talk to a couple of real estate agents and lenders to see what they will do to earn your business. Rates and fees are important, but so are good communication, on-time closings, and professional advice during the process.
Tom Heath is the Vice President of Mortgage Lending for Bancapital Home Loans, a Tucson-owned and -operated mortgage bank. Mr. Heath has served on the boards of several real estate industry organizations and has received numerous awards and accolades for his involvement in financial literacy programs focusing on high school-aged curriculum.
He has owned a home in Rancho Sahuarita since 2004.
NMLS182420/NMLS170838/BK0907403 | Equal Housing Lender