I can’t think of many pilots I know who would walk into a checkride without taking at least a little time to review the procedures and prepare. When it comes to a mortgage, the same should hold true. A little upfront preparation and financial housekeeping will go a long way towards helping you, your loan officer and all involved, have a smooth transaction.
There are many pieces to the mortgage puzzle, many of which I have reviewed in previous columns. Your credit is a huge part of the mortgage equation, so prior to beginning the mortgage process, take a look at your credit report. Did you know that you can get a free copy of your credit report from each of the three bureaus once per year? Just go to www.annualcreditreport.com to begin that process. This is the ONLY source authorized by federal law, to provide free credit reports to consumers. I know many people who will obtain a report from one bureau every four months, allowing them to keep tabs on their credit throughout the year. If there is anything of concern, such as disputes, collections, or what are known as “derogatory remarks,” reach out to the creditors or credit bureaus to resolve them.
During the mortgage underwriting process, your finances will be reviewed with a magnifying glass. Credit reports don’t update in real-time. I often see reports lag a couple of months in reflecting mortgage payments. For example, the report may show the most-recent payment was made in June, but we are already into September. Because of this, additional documentation will be required to prove to the lender that you’ve made on-time mortgage payments since the last-reported payment on the credit report. This can be easily accomplished by furnishing statements from your loan servicer. Having online access to all your accounts and the ability to quickly obtain statements and documents can make for an easier process for all involved. Your loan officer will advise you specifically which documents may be required.
If you’re buying a home or bringing cash to close for a refinance, you’ll probably have to show proof of sufficient assets to close. If you’re like me, you may have several bank accounts for different purposes. Underwriters will review any accounts provided. If your grandma gave you $6,000 as a birthday gift, be prepared to explain it. This is known as “sourcing” and is required for any funds that have been in an account for fewer than 60 days. Funds that have been in an account for longer are considered “seasoned.” Do your bank statements have blank pages? Whenever sending bank statements, send ANY and ALL pages, even if they’re blank! Plan to use some stocks or bonds to cover a down payment or closing costs? That’s okay, but current guidelines due to market volatility state: “Evidence of the borrower’s actual receipt of funds realized from the sale or liquidation must be documented in all cases.”
Did you recently pay off a car? Any installment debts you’ve recently paid off may need to be explained. In mortgage speak, we call it a “letter of explanation” or LOX. In many cases this is simply a signed letter stating that you paid off the loan and didn’t assume any new debts. That should be sufficient.
Completing a loan application is only one step in getting a mortgage. After that, you’ll work with your loan officer and their team to provide any required documents. Having clear expectations as to exactly what documentation is needed will help your loan to close faster and make for a smoother overall process and happy closing!