What You Must Know About Mortgages

san diego mortgage lender factsPlanning to buy a new house or refinance your current loan anytime soon? You will most likely have to go through the mortgage application process. And before you do, there are 3 things you may not know that could help the process go more smoothly while possibly saving you money.

1. The “Rules” can be bent
A lender will evaluate your application in a few key areas when you apply for a mortgage. These include your credit, income, employment history, savings, and debts. And many lenders have specific guidelines in each category. For instance, two common requirements are that your total mortgage payment is less than 28% of your income and your mortgage payment plus the rest any debts/monthly obligations combine to be less than 36% of your total income.

Many people don’t realize that lenders will make exceptions to these “rules,” especially if some of your other qualifications are particularly strong. For example, if your debts are a little high but your credit score and employment history are excellent, then there’s still a good chance you’ll still get approved. The Fannie Mae lending criteria actually provide underwriting guidelines for debt-to-income ratios as high as 45%.

2. Your FICO score isn’t everything

You do not have to have a perfect credit score to qualify for a mortgage. And this is completely understandable, as the average approved borrower currently has a FICO credit score of 729 (while this is a good score, it’s not excellent either)fico score knowing about mortgage process

So yes, lenders will approve much lower scores so long as your other qualifications are solid (of course, your interest rate will be slightly higher). You can actually qualify for a conventional loan with a FICO score as low as 620, and you can get a FHA loan with just 3.5% down with a score as low as 580. And if you have a larger down payment, you may be able to obtain an FHA loan with an even lower score than that. So if you’re just above the credit score cutoff, your other qualification criteria will play a larger role in whether or not you’ll get approved.

3. Shopping around is huge
Way too many people simply accept the first lender they check with. They’ll either deal with their real estate agent’s “mortgage guy” or simply apply for a loan with their own bank. Just like anything we buy these days, not all loans are created equal. Rates and fees can vary widely. A slight discount in monthly payment can add up big over the term of the loan.

Many people don’t want their credit pulled multiple times when applying for a loan. It’s true that multiple inquiries on your credit cause your score to drop by a few points. However, all of the mortgage inquiries that show up during a “normal shopping period” count as one single inquiry (even the credit bureaus want consumers to shop around). This shopping period varies between 14 and 45 days depending on which version of the FICO score your lender is using. As long as you do all your shopping within a two-week period, it doesn’t matter whether you apply with one mortgage lender or 10. The impact on your credit score won’t change.

The bottom line

The more you know about the mortgage process, the easier it will be, and the better loan you’re likely to get. Knowing the facts from the fiction is a great start, but any time you invest, learning more about the process will pay off in the long run.


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3 Responses to “What You Must Know About Mortgages”

  1. […] one, you have seen the Good Faith Estimate and Truth In Lending disclosure at the beginning of the loan process to estimate costs/fees. You will also have seen the overly-complicated closing settlement […]

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  3. Avatar ig says:

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