If it has been a few years since you took out a mortgage loan, be prepared for questions, and to thoroughly document everything.
A critical characteristic of good character is payment history. Payment history is an indicator of good financial merit; however, it does not hold any weight in the larger financial picture. You must have an equal blend of a sufficient credit score, solid income, healthy payments in relationship to your income and cash. Without these factors, your ability to get a mortgage in today’s bureaucratic environment is severely limited. Let’s say for example you have an 800 credit score, stable income, large home-equity and big cash in the bank. But based on how you file your tax return, your tax return income does not support quite enough income to offset the proposed mortgage amount you’re looking for. Even if you’ve made your mortgage payment on time for the last seven years, this factor is not going to be considered to grant you an underwriting loan approval.
All loans in today’s environment are government-guaranteed via Fannie Mae or Freddie Mac, or government-insured such as FHA (the Federal Housing Administration). Approximately 3% of the total aggregate of mortgages in America today are portfolio loans. This means that 97% of all mortgages originated in the United States are government-backed or government-insured. The government literally tells lenders what they can and cannot do in terms of providing sufficient documentation to make good loans. Lenders operate off guidelines a.k.a. a checklist of what is acceptable and what is not acceptable. Even a pragmatic lending decision in today’s environment by a human is not considered to be sufficient. It must meet the guidelines first then reviewed for whether it “makes sense”.
This means you need to have your financial house in order, in order to refinance your house. One of the ways consumers think benefits them is to go to their lender who they’re making their mortgage payments to. Their servicer tells them refinancing the mortgage is going to be made easier because they need less documentation and the process will be easier. Simply not the truth. All mortgage lenders need validation of supporting documentation including income and assets. While it is true some lenders can get some loans done, while others can’t, the overall majority need supporting documentation and you need to be able to show on paper that you can actually afford the mortgage that you’re applying for and more importantly that you can maintain it. Unfortunately, payment history is one of those things that lenders expect that you do and it does not give you a leg up in the eyes of the decision-maker. Having a healthy blend of sufficient credit, payment to income ratio, savings in the bank and equity in your property will far outweigh any other idea, thought, notion, program or any other widget you may have heard about being able to secure a successful refinance.
This is the environment where you need a lender who truly knows loans working on your behalf, who can successfully help you refinance to accomplish your financial objectives. Not a lender who promises you the world, only to change things later on down the line in the process.
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Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.