I wanted to steer our previous real estate discussion in a different direction today. We talked about rental properties, negatives of real estate, positives of real estate investing, and various other sub-topics. I just missed one CRUCIAL STEP. I completely neglected the fact that getting a mortgage these days isn’t that simple!
For today let’s look at what needs to be done so that you even get approved for the actual mortgage:
Excellent credit score.
Without a high credit score (in the 700s) you’re an extremely risky loaner in the eyes of the lender. Why would anyone loan you hundreds of thousands of dollars if they’re not sure that you’ll pay it back?
A high credit score will help you obtain a mortgage and it will determine what kind of interest rate you’re offered (which could save you thousands of dollars over the term of the mortgage).
This is why you need to ensure that your credit score is up to par before you even attempt to go in for a mortgage application. Years of late credit card payments may come back to haunt you. This is why it’s important that you look into tools for improving your credit score  so that you can save money in the long run.
The days of leveraging a real estate property with 5% or 10% are pretty much long gone. Unless the underwriter working at the bank is your buddy John from third grade, chances are that you’re going to have to put down a serious down-payment to get approved for a mortgage these days. What’s a hefty down-payment? Well I don’t work for a bank, but it’s fair to assume that at least 20% is recommended. Anything less than that and you’re going to have a difficult time with your mortgage approval application.
If the home property is going to eat up 100% of your savings, how will you survive? How will you cover your mortgage payments if you lose your job? It doesn’t matter if you need the mortgage to pay for a rental property or your primary residence, you need to show the lender that you’ll have sufficient savings “just-in-case.” If not, then you simple become another risky client. Being in possession of additional savings/assets shows the lender that you have money to cover any surprise expenses that may come your way.
Do you have a steady source of income? When being loaned a large sum of money, you need to prove that you’ll have enough of an income to consistently make your payments. If you’re an entrepreneur or someone that has a difficult time proving their financial situation, the lender may not be too eager to loan you money. It’s not that they don’t believe in your potential to earn lots of money down the road. They simply want a guarantee of this.
Saying that you make X or do X for money is irrelevant. You need to back everything up with extensive paperwork. This never happened to me thankfully. Unfortunately, many readers have informed me of stories where their place of employment was called 3-4 times just for verification. Apparently, there were no errors with the actual application form, but the lender wanted to double check a few pieces of documentation. Are you prepared to deal with this?
Have any of you gone through the mortgage approval process recently? If so, how did it go for you?