Getting a mortgage loan these days requires a whole bunch of paperwork. The purpose is to prove that everything you say on your loan application is true. Did you make the income last year that you are claiming? What is your bank balance— really? Can you prove you actually paid off those student loans? It begs the question, what’s next? Are lenders going to come over to your house and rifle through your underwear drawer?
Qualified Mortgages are basically an “ability-to-repay” rule. Due to some of the unscrupulous lending practices during the 2007-2009 housing crisis, a policy was created to ensure access to safe mortgage loan financing for credit-worthy homebuyers. In order to do this, lenders have to look deeper into a buyer’s criteria before making a mortgage loan.
So, what does this mean? To provide a qualified mortgage loan, lenders have to prove eight things about each buyer:
- Current income or assets
- Current employment status
- Credit history
- The monthly payment for the mortgage
- The monthly payments on other mortgage loans you might get at the same time
- The monthly payments for other mortgage-related expenses, such as property taxes and homeowner’s insurance
- Other debts
- Monthly debt payments, including the mortgage, compared with your monthly income and how much money you have left over each month after paying your debts—or the debt-to-income ratio
First-time homebuyers, low- and moderate-income buyers, and self-employed buyers who don’t have a consistent flow of income might have a tougher time in this lending environment.
How to prepare for the Qualified Mortgage process
Make copies of every piece of paperwork you give to your lender. That way, if you’re asked to send it again (sometimes it happens), you have it ready to go.
Also, know that these verifications mean you really can’t lie on your mortgage loan application. The days of Stated Income scenarios are flat g-o-n-e. You’ll just get caught and then you won’t get your loan. It also may take longer then you expect to get your loan approval as well. Be patient.
Be sure to discuss lender choices with your Realtor
We are in the marketplace daily and have relationships with the best of the best in terms of mortgage lenders. We also know what lenders are really doing versus what their loan officers say they’re doing. Always, use your Realtor as a resource.
And, you can relax: that “questionable” item in your underwear drawer will remain for your eyes only.