My name is Bill Clifford, I am a loan officer with Open Mortgage. I’m the first to admit that the loan process is not nearly as much fun as the rest of the home buying experience. It requires that you divulge personal information about your credit, income, savings and job, in addition to providing all of the documentation to support your application. The good news is that this process can be easy and painless if you know what to expect.
There are two questions that are key when considering the purchase of a new home:
- How much can you afford to pay each month?
- How much money do you for the down payment and closing of the sale?
Four Most Important Loan Factors
Credit: There are many loan programs out there and some, though rare, will accept scores as low as 530 if all of the other stars align. Scores of 740 and up will give you the best possible terms. Be ready to explain any “issues” (i.e. bankruptcy, collections) that show up on your credit. These can stand in the way of an approval regardless of your score. Accounts “in dispute” will need to be resolved before the purchase process is complete.
Income: In analyzing your income, the loan officer will determine your debt to income ratio (DTI). Your DTI is the percentage of money for your new mortgage including taxes and insurance, plus the monthly debt on your credit report, divided by your total gross income–phew! In most cases the max DTI is 45%. You’ll need to provide recent pay stubs, W-2s and tax returns for the past two years. If there are “irregularities” in your income, like bonuses or commission, be sure to let the loan officer know. The underwriters, who ultimately approve your loan, will want explanations for that income.
Assets: The loan officer will need to verify that you have enough money for your down payment and the closing costs. Ideally, you’ll have all this money in one account—but most people don’t. Some may have gift money coming from parents or a tax refund in the queue–all fine as long as you inform your loan officer. “Irregular” deposits will also require an explanation to the underwriter.
Employment History: Typically, one year in the same line of work is enough, and less if you’ve recently graduated from college. If you’re self-employed you’ll need to show you’ve been in the same line of work for the last two years with consistent income.
The key to a smooth loan process is to be very open with your loan officer. The more I know about your situation, the easier it is to address anything that could slow down the loan once you’ve chosen a home. Most importantly, be sure to ask lots of questions–a great loan officer is always happy to do so. Got a question for a great loan officer? Just ask.
Bill Clifford is a loan officer with Open Mortgage. When he’s not calculating DTI’s, he enjoys yoga, whiskey bars & exploring Downtown LA with his BFF Pancakes. If you’d like to qualify for a loan, contact him at (310) 515-9993.