Like always, we are seeing constant changes in our world of real estate. Whether it be lending, buying, renting, investing, flipping etc., there will always be something changing (sometimes for the better, and sometimes for worse). I wanted to touch on different topics this month that may apply to any given person. Here are three topics to think about, remember, or just have good practice on when preparing to obtain new mortgage financing.
- Pay attention to your finances depending on what you plan to do in the future – Lenders are being very diligent in requesting documentation as regulations have tightened even more. The rules put pressure on lenders to verify that borrowers have the ability to repay their loans. Keep good records of your finances, including bank statements, tax returns, W-2s, investment accounts and any other assets you own. Be ready to explain any unusual deposits to your accounts. Yes, the $500 cash repayment from your buddy who you previously loaned money to can delay your loan closing if you can’t prove where the money came from.
- Be proactive with your credit – Credit standards have become more lenient recent years, but if you are planning to get a mortgage or refinancing, monitor your credit practices until your loan closes. I can’t tell you how many times I have had a big purchase on credit during the loan process be the reason a borrower loses a home. No big purchases, cars, or new credit while in the loan process!
- Keep track of debts and spending habits – Lenders don’t want to give loans out to borrowers who will have little money left each month after they pay all their monthly debt obligations; it’s always good to show residual income. Try to keep your monthly debt obligations including your mortgage, insurance and property taxes around 45% to 50% percent of your income. When I talk about your monthly income, I am referring to gross monthly income. On some loan programs, you can go as high as 57% to even 60% debt to income ratio; but it’s always good to have the goal of stay below 50%.
If you have any questions or need any advice, don’t hesitate to reach out!
- Don’t open new debts while in contract
- Don’t quit your job
- Don’t deposit substantial amounts of cash into your bank account.
- Disclose all debts
By Andrew Augustyniak, Branch Manager Prime Lending