the arbor edge

The most common question we get at Arbor Mortgage is “Can I even get a loan?”.  Mortgage loans are about the 3 C’s – Credit, Capacity and Collateral. Collateral, or the home being secured by the loan, is most often not in the client’s control. Credit and Capacity (or ability to pay/income), however, are in the client’s control. So, let’s talk about what YOU can do to make yourself approvable.

Credit

Most lenders are requiring at least a 620 credit score in order to obtain a mortgage loan. 620 is not a magic number, though. Lenders are still looking at the actual credit history as well. It’s important to have at least 1 year “clean”; meaning no late payments in the last year. If there are late payments in the last year, be prepared to explain and document them.

Collections and judgments are often problems, even for those with higher credit scores. Judgments must be satisfied before any mortgage lender will even consider you. Collections are more of a gray area. Government guidelines do allow collections to remain open, but most lenders like to see them paid, especially if they exceed $1000. Disputing collections is one technique that many credit repair companies used in the past to try to remove them. Fannie Mae has since caught on to that trick and will flag any collections in dispute by downgrading the file to a manual underwrite. Manual underwrite might as well be a decline, because most lenders refuse to approve them.

Bankruptcies and Foreclosures are two items that have come under heavier scrutiny in the last year. Conventional mortgages will require at least 5 years have elapsed since a discharged bankruptcy and 4 years since a foreclosure. FHA is a little more lenient, allowing for just 2 years for bankruptcy (or only 1 year with extenuating circumstances) and 3 years for foreclosure. There better not be any late payments after a bankruptcy or foreclosure, though, because many underwriters will immediately reject the file.

People are often shocked at the amount of documentation they are asked for when it comes to their employment. Why? Doesn’t it make sense if you’re borrowing 6 figures or more that the bank would want to know that you have the ability to pay it back? Trust me, the banks aren’t trying to be intrusive and ask for everything down to a DNA sample. They just want to know you can make the payment. The type of documentation you have to provide varies for the type of employment.

You must show a 2 year history of employment. It doesn’t have to be the same job, and it can even be several jobs. The lenders just want to see a consistent history of employment, with no lengthy job gaps. If you had a week or 2 between jobs; no big deal. 6 months? That might be a problem. To prove your employment, you’ll be asked to show:

Again, a 2 year history is a must, especially for self employment. If you’ve only been on a 1099 at your job for 6 months, you are likely to be declined. Each lender has their own requirements for documentation on a self employed borrower, but at minimum, expect to show:

Keep in mind, the lender will still pull a copy of your tax return transcripts from the IRS to match to your documentation. So, don’t leave anything out when providing documents to your loan officer.

If your credit history meets the basic guidelines above and you can provide all the income documents mentioned, than you have a very good shot of loan approval. That means it’s time to talk to a loan officer about the next step. Pre approvals are always free at Arbor Mortgage, so Contact Us today to get yours!