I’m asked on a weekly basis, “Are banks lending money?
Are you actually able to get people loans?”
The answer is yes, and it ties into the basics of a mortgage…
If one can show they can afford a monthly mortgage payment, demonstrate they have made timely payments in the past, and come up with the cash it takes to close, then a lender is willing to grant the loan.
Afford a monthly mortgage payment:
This is documented by monthly income, and by documented we mean what is shown to the government on W-2′s and Tax Returns. We also need a history of generating consistent income, usually two years worth.
Demonstrating timely payments:
This is tied directly to the credit report and why credit scores are so important. A credit score is made up of a number of factors that a book could be written about, but what is important to know here is that it represents the likelihood of someone being late on a monthly obligation. So, it is pretty simple…. Demonstrate a good payment pattern, have a good credit score, and look good to a lender. This is not to say lenders must see perfect payments. Things happen… Payments are missed, unknown collections are pop up… That is why lenders will allow for flawed credit, but in turn asks for a little higher rate, because they are now lending to a higher risk borrower.
Cash to close:
This figure includes the amount for the down payment of your choice, plus closing costs, taxes, insurance, and interest due at closing. Most people think that you need twenty percent to buy a home these days… but there are programs available that only require 3.5% down, plus the other items listed above.
Once we have these three pieces of information they go into an automated underwriting system. This system completes an initial review of the figures and determines if it meets standard underwriting guidelines. Once this is issued we submit the supporting documentation (paystubs, W-2’s, Bank Statements, Credit report, etc) to our underwriting department that will formally review the whole file and issue a final approval.
There are a hundred other things that could be written about this topic… so please comment below with specific questions we can address.