10 Steps to a Speedier Mortgage Loan Approval

I’ve bought and sold many homes in my life. I’ve bought homes when I was in my 20s with poor credit, later with good credit and also more recently, with cash. So I know first-hand getting approval for a mortgage loan can take anywhere from several days to several months and the time difference generally depends on you.

The good news is I just wrote recently why 2016 is still a great year to buy a house and you have plenty of control in speeding up the mortgage loan approval process in many ways.

1. Check your credit score first. While you can currently get a mortgage with a credit score as low as 550, these specialized FHA government loan programs go through a lot more layers, so they take longer for approval. They are also more costly in terms of annual fees and often interest rates, too. With a credit score of 620 minimum (even better at 700 or higher) conventional loan programs move a lot more quickly and smoothly. Check your credit score with one or two of the free services, or via one of your credit card accounts that offers a free credit score so you know where you stand.
2. Go in with your highest possible credit score. If you determine your credit score is below 620, you might want to work on ways to improve your credit over the next year. Run a mortgage loan calculator which takes credit score into consideration to see what types of loans rates, amounts and interest rates you might qualify for. If your credit is near 620 or even nearing 680 or higher, you might want to take a few months to get your credit score as high as possible. While this will take longer until you’re ready for loan applications, you will likely save thousands on a mortgage loan and have a speedier pre-approval process, too.
3. Check all three credit reports before shopping around. Check your credit reports for free at annualcreditreport.com and look carefully for errors that could be keeping your score low such as account number errors, payment errors, collections or old accounts that should have dropped off after seven years. Also, check for other errors which make your application information hard to verify such as an incorrect social security number, full name, birth date, employment or address history and take the time to dispute all errors directly with the credit bureaus by mail including supporting documentation. Verifying that every single piece of information on your credit report is accurate will stop you from applying right now, but will speed up the pre-approval and loan commitment process once completed.
4. Have a straightforward financial history. If you had a short sale, are divorced and pay alimony or child support, had a period of poor credit, are self-employed and can’t verify your income or received gifts for your down payment, verifying these factors is going to take a lot more documentation and a lot more time to confirm, lengthening your loan approval process significantly. If, on the other hand, you and your partner have the same jobs for several years and can verify your income with W-2 forms and your credit has remained stable, your mortgage loan pre-approval time will be significantly shorter and less complicated.
5. Have all of your documentation ready. You will need to verify every bit of financial information on your application and the longer you take to supply your broker or lender with those documents requested, the longer the application and pre-approval takes. This process of verifying all of your information is called underwriting and, these days, it is an automated system. Most lenders need to submit the following documents to the automated underwriter: Two years of W-2s and tax returns, two months of current bank statements showing where the down payment will come from as well as any reserves (savings) amounts, any other assets such as other real estate owned out-right, any other sources of income and a consent to run your credit where they will verify all of your debt payments and account history. Based on those documents, the automated system will tell your lender what else you may need to supply.
6. Know how much house you can afford. Determine how much house you can afford before approaching lenders to avoid wasting time the lender has to take to explain to you why you can’t afford the higher loan amount. You can simply play around with the numbers on a mortgage calculator by adjusting the loan amount and interest rate until you reach a payment you think you can afford, based on your income and expenses. Then, run your DTI (Debt-To-Income ratio).
7. Know your DTI. Go in to the pre-approval process knowing exactly what monthly payments you can afford the same way a lender will look at it. One important ratio mortgage lenders check is called your Debt-To-Income ratio or DTI. This tells a lender what percentage of your income will be paid toward debt including a mortgage and all other debt payments combined. Lenders like to see a DTI of 36% or lower. Run a DTI calculator using all your current debt payments and changing the mortgage payment amount until your DTI is 36 or lower. The lower the better.
8. Have your down-payment already in your bank account. Part of the underwriting process includes bank statements where the lender is looking back about two months to see that your down-payment is available and to verify where it came from. You can use money gifted to you by family or friends, but you have to provide a verification letter of that, too.
9. Get pre-approval, not just pre-qualified. Knowing the difference between these two terms can mean extending the process by as long as it takes to gather all your documents for verification. A pre-qualification is just an informal conversation with a mortgage broker about your income and expenses and how much house you might be able to afford and is largely a time-waster. A formal pre-approval means a lender has submitted your income documents, run your credit and verified your information to determine what loan amount you will be offered at what interest rates. Ask for a pre-approval to speed up the time it takes to get real estate agents to respond to your request to see houses as well as the loan commitment process once you find a home in your price range you’d like to purchase.
10. Respond immediately. Whenever your lender calls you with questions or to supply more information, if you don’t reply immediately and supply whatever is requested immediately, you are delaying your own mortgage loan process.

I’ve read through this 28-page home loan toolkit from the Consumer Financial Protection Bureau and think it is helpful for understanding every step of the mortgage loan process as well as all the terminology and choices you will be faced with. Using it is one more smart way to speed up your mortgage loan approval process and feel confident that you made the right choices.

Related Articles:

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Why 2016 is Still a Great Year to Buy a House

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