Give Clients A Heads-Up On The Mortgage Process

You may have prospects, or clients in the very early stages of the home-buying process, who haven’t yet seen a mortgage professional but have questions about where to start if they want to finance a home.

Here are some terms your clients will hear throughout the financing process. While it’s the lender’s role to guide them through the process, it will benefit you and your clients if you can give them a heads-up.

Costs: First and foremost, buyers should be prepared for a down payment of at least 3% to 3.5% (with the exception of VA loans, which are available with 0% down payments). This, of course, excludes closing costs and escrows.

Income: Buyers should only discuss income with their lender; however, many buyers have different interpretations of what “income” actually means. Outside of traditional hourly and salary income, buyers are able to use Social Security, pension plans, and long-term disability settlements as allowable income. Unemployment benefits aren’t allowable, largely due to the fact that they are short-term.

Assets: Lenders will want to know that borrowers have some type of vested financial interest in the property, through the assets that they bring to the table. Assets can come from a variety of sources, including checking and savings accounts, employer retirement plans, and gifts from close relatives.

As with income, clients will have questions about what can and can’t be considered an asset.

In the financing process, if not in real life, the definition of an asset doesn’t include items like cars, motorcycles, boats, and jewelry. In theory, any of these items could be turned into cash, if needed, to help keep the mortgage current and/or the property out of foreclosure; however, lenders don’t view it this way.

Credit: This is the most important of all of the criteria used during the approval process. Regardless of the income or assets a buyer can show, lenders want to be reasonably certain that your buyer has both the ability and the desire to make the monthly mortgage payments.

Therefore, payment history is critical. If lenders see recent late payments, they will question them, and ask (rhetorically) why they should expect different behavior in the future. Often there are legitimate reasons for late credit payments, including medical- or employment-related issues; your clients will need to explain these reasons to their lender.

If, however, late payments are the result of poor money management skills, the lender will be reluctant to extend even more credit to someone who has demonstrated an unstable payment history.

Balance-to-limit ratios are also considered in the financing process. Even when they make all their payments on time, if your buyers are maxed out on multiple lines of credit, their lender will see a red flag; at issue is how this debt load would be paid if there were a disruption in household income.

The bottom line: For anyone looking to purchase a home, showing lenders they are capable of living within their means is always the best option.

GenNEXT Funding is always here to help and can guide you and your clients through the mortgage process from start to finish. Call?800.773.6531 | email [email protected]?