When applying for a loan, you have to ‘get naked’ financially with your loan officer, baring your entire money life for them to assess. Here’s how to prep and get comfortable divulging.
The old saying, “It’s easier to ask for forgiveness than for permission,” does not hold true for mortgage applications, says Fred Chamberlin, senior mortgage consultant for Alpine Mortgage Planning.
It’s much easier to explain or compensate for problems at application than after underwriting. That’s why it’s crucial to prepare to bear all with a mortgage loan officer.
“When you are discussing your financial situation with your loan officer, you need to let them know everything pertinent to the transaction,” adds Chamberlin.
Start the process by being true to yourself. Analyze your financial situation, says Wendell C. White, a managing partner with Buckhead Mortgage in Atlanta. He suggests that you ask yourself some basic questions that could include: Is my current income reliable? Do I have a good record of paying my bills? Have I saved enough money for a down payment? Do I have the ability to pay a mortgage every month, plus additional costs?
“Too many times, consumers come to us thinking that they qualify for a larger loan when, in fact, they can’t afford one,” White says.
If you don’t fully understand your financial picture, you may wonder why the mortgage loan officer isn’t offering you the same deal as your neighbor. A strong relationship between a loan officer and a homebuyer starts when the consumer comes in with all the information needed to seek the best financing option.
You should ground yourself on the entire mortgage process.
“Take in information, digest it and figure out ‘what I believe.’ Then it’s easier to trust a mortgage loan professional,” White says.
Once you understand what to expect, request a copy of your credit report—but realize that it is only a gauge. Financiers use a combination of three credit reports that may not be the same as the credit disclosure that a consumer obtains from a credit union.
Traditional loans, which are becoming the norm again, require the most recent 30-day-consecutive pay-stubs, most recent 2-year W-2s, bank account statements, statements regarding investments such as a 401(k) or other retirement funds, value of life insurance policies, a listing of assets, balance of current debt on loans and more. Chamberlin says don’t hide any debt.
“There are debts that won't show up on a credit report because they are too new, but they still need to be disclosed,” he says. “It is not unusual for a lender to run a new credit report prior to funding a loan and if it shows up then, you have trouble.”
Falsifying information will eventually catch up with you too. Chamberlin reminds consumers that lying on a loan application is fraud. Fraud can land you in jail.
With the rise in foreclosures, lenders must more closely scrutinize applications.
A report released by the Federal Bureau of Investigation found that 30 to 70 percent of early mortgage payment defaults stem from a borrower misrepresenting their financial situation on a mortgage loan application.
Honesty is crucial in developing a valuable
relationship with a mortgage loan officer.
Don’t get offended if a mortgage loan officer asks for concrete answers to explain discrepancies in your credit history or score; respond honestly.
A loan officer also may ask for information that could qualify you for various programs. Don’t hold back, he says. For instance, telling your loan officer that you receive child support may help you qualify for more optimal terms.
White suggests that buyers try to also follow their loan officer’s advice. He frequently recommends to his customers that while awaiting closing on a home they don’t buy or lease a car or move assets from one bank account to another.
“Something like a new car loan can impact the debt-income ratios and prevent you from qualifying for a home loan,” he explains.
White says the goal is to “share in a big hug by sharing the truth with you of what we see and getting through the process together.”
© CTW Features