Smooth Out the Mortgage Application Process by Getting One Step Ahead of Your Lender

When Should You Apply for a Mortgage?

Bankruptcy/Foreclosure

If you’ve recently filed for bankruptcy or foreclosure, wait until after the bankruptcy/foreclosure period is over to apply for a loan. That’s typically two years from the date the bankruptcy has been discharged. You can borrow to buy a home before the discharge, but expect higher interest rates and requests for more documentation from a lender.

For a foreclosure, the FHA and USDA have a three-year waiting period. This begins the day after the previous property was sold in a foreclosure proceeding.

The waiting period is about seven years for conventional loans. In all cases, length of time can vary with loan types and individual circumstances—so check with your lender.

Self-Employment/Irregular Income

Most lenders want to see a consistent source of income, so avoid jumping from job to job.  If you’re self-employed, wait until you have tax returns showing two years of income as a contractor before you apply for a mortgage.

If you are not self-employed but have irregular income, time your application. For example, a teacher who works nine months out of the year and has no income in the summer should apply for a loan outside of the summer months.

Credit Reports and Scores

Check your credit report using a free site, such as AnnualCreditReport.com, and fix any errors before you apply. Be on the lookout for the most common report errors.

According to the Consumer Financial Protection Bureau, these include incorrect identifying information, such as name, address, and phone number. Closed accounts reported as open and having the same debt listed more than once are other common mistakes.

Also, strengthen your credit score by establishing credit early, paying your bills on time, and being careful not to use all of your available credit. Those with scores in the 700s or higher tend to get more favorable mortgage rates.

What Is Needed to Apply for a Mortgage?

To help expedite the mortgage application process, create a secure digital folder with the required documentation. Update this file yearly.

“Most loans require two of everything,” said Michael Smith, a senior loan officer with Guild Mortgage.

These typically include two W-2s, two tax returns (all pages and schedules), two pay stubs, and two months’ worth of bank/asset statements, according to Smith.

Plus, investors may need to show copies of rental lease agreements, mortgage statements, and proof of insurance on rentals. And prepare letters of explanation early. Lenders may ask you to explain address changes, large account deposits, bankruptcies, foreclosures, and mortgage applications from other lenders.

Related: Investment Property Loans: The Ultimate Guide to Funding Your Deals

How Long Does It Take to Apply for a Mortgage?

How long did it take to apply for your last mortgage loan? One investor told me that it took more than two months to do a cash-out refinance. She expected to have it done in 45 days.

I’ve also heard stories of the underwriter being sick. Or the loan signing agent being a no-show on the closing day.

Delays can be frustrating and cause newbie real estate investors to dread the whole process. The best way to prevent feeling frustrated is to accept that there will be delays that are outside your control. That means you prepare for the eventuality and are OK when delays happen.

You might not, for example, take the closing date your lender gives you as gospel. If you manage to close before or on that date, it will be a pleasant surprise.

Also, let go of the idea that your role as an applicant is passive. Stay in constant communication with your loan officer or underwriter. That way you can respond appropriately to delays and manage any fallout from those delays.

Are you interested in buying a house? We can build you a custom made house.  Fill out the form below to find out more.

See original post by Suzie R and more at “https://www.biggerpockets.com/blog/smoother-mortgage-application-process/”