Applying for a mortgage as a first-time homebuyer seems so simple these days. Upload some information online, hit submit and you’re good, right?
Maybe not so fast. There are certain questions you can expect to be asked in one form or another, whether it’s during your online app or in follow up.
It’s always best not to be blindsided, so here is a heads up on what you’re likely to be asked.
1. What’s your credit score?
OK, in reality, the lender isn’t likely to ask this question so much as to ask for your social security number so he or she can learn this information. But it’s still best to get your score for free before your appointment so you aren’t blindsided.
Keep in mind the FICO score your lender looks at can differ—sometimes greatly—from the free scores you can get from consumer apps like CreditKarma.com or NerdWallet.com. However, if you are working to move your score in the right direction, that should help across the board.
2. Do you have enough credit history?
You may have been thinking that your credit score is all a lender looks at when decided your credit worthiness. In reality, a lender is going to look at your credit history. Having a very high score, but only one credit card that you never use, doesn’t tell the lender much about your credit worthiness. You may not qualify for the best rates, despite your high score. In severe cases, the lender may even provide you with tips to take on a small amount of additional debt and pay it off over time to improve your credit history.
3. What is your verifiable income?
There’s no way around it—lenders love income that’s easily verified from a W-2. If you start to add on additional income—maybe you run an Epsy store on the side or do some freelance work—you will need to verify that income and convince the lender that it will continue into the future. The lender may or may not decide to consider the additional income.
At the same time, you should avoid changing income streams while your loan is being processed, even if it doesn’t reduce your income.
4. Have you changed jobs recently?
It’s common for a job change to also trigger a relocation or home upgrade. Unfortunately, lenders vary in how they handle job changes. Some lenders do not care if you change jobs—or even career paths—as long as your W-2 income isn’t reduced. Other lenders are likely to request you stay at a new job at least one or two years before they want to loan you money.
If you’re moving from a job where you are paid 100% via salary to a job that pays you a base plus commission, expect to hit some speed bumps with your lender who is not likely to count more than your base pay if you have just recently changed positions.
5. Do you have enough cash on hand?
Expect a lender to look at your bank account statements, probably for the past one or two years, to determine if you have enough cash on hand to buy a house, including down payment. If you have money in stocks that you want considered as cash, keep in mind a lender is likely to discount the value so that $50,000 in stocks won’t be counted as $50,000 cash on hand. That’s because the stock market goes up and down, so $50,000 today may not be the same on the day you liquidate it. In addition, you’ll have to pay capital gains taxes, so the lender typically takes that into consideration as well.
Another common source of cash for buying a house is a gift of money from a parent. If that is something you’re planning, expect the lender to ask your parents to provide a letter stating that the cash is a gift and not a loan.
6. What other debt do you have?
Expect your lender to calculate your debt-to-income ratio. If the other monthly payments you are making are too high, you may not get approved. Examples of other monthly payments include car payments, credit card payments, and installment loans. One additional word of caution: don’t take out any new lines of credit before your loan closes. It will impact your debt-to-loan ratio and possibly derail your loan.
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