When applying for a mortgage loan, most people have a hunch that the application process will involve quite a few hurdles to jump over. After all, no matter what specific loan a person applies for, all mortgages involve significant amounts of money and, consequently, significant risk on the part of the mortgage lenders. When dealing with these hurdles, it’s not uncommon for applicants to become overwhelmed and stressed out. This is perfectly understandable. If people have at least some idea of what to expect from the mortgage loan application process, however, then there’s a better that some stress can be avoided. In this post, we will go over some of the things you can expect to encounter when you apply for a mortgage loan in Seattle.
Before we dive in, you should keep in mind that the requirements in any given case will depend on the specific type of mortgage loan you’re applying for. Some mortgage loans carry specific requirements which are not shared by other loans. If you’re applying for an FHA loan, for instance, then you will deal with the requirements which are specific to that loan. What we will discuss below are requirements which are encountered in the application process for nearly all types of loans.
You Will Need to Make a Sizable Down Payment
In nearly all cases, you will need to make a down payment on the home you plan to buy in WA. The standard down payment is 20% of the purchase price. However, depending on the situation, some lenders may require down payments which are significantly smaller. For instance, some Seattle mortgage lenders may only require a down payment of just 3% to obtain a mortgage loan. However, to increase your odds of qualifying, it is advised that you have a sum of money on hand to use as a down payment. Remember, the larger your down payment, the less you have to pay off and the smaller your monthly payments will be.
You Will Need to Have a Certain Debt-to-Income (DTI) Ratio
One of the main criteria which lenders use to assess your financial capabilities is your debt-to-income ratio, or DTI ratio. Your DTI ratio compares your gross income against your recurring monthly debts. This ratio is useful as it gives lenders a sense of your ability to reliably pay back your mortgage loan on a consistent schedule. If your DTI ratio is too high, this may cause some lenders to question whether you will be able to consistently make your monthly payments. A DTI ratio which is on the high side won’t necessarily prevent you from obtaining a mortgage loan; but, it will usually require that you have compensating factors on your side to reassure the lender that you won’t have problems during the course of repayment. For instance, you may need to show that you’re in possession of substantial cash reserves, or have other assets which you can tap into if necessary.
To be in good shape for a loan, you’ll want to keep your DTI below the mid 40% range. Anything approaching 50% will typically require compensating factors to show the lender.
Calculating DTI ratio is fairly simple. You simply compute your gross compute, compute your recurring monthly debts, and then divide your monthly debts by your gross income. Let’s take an example. Suppose your gross monthly income is $5,000 and your monthly recurring debts amount to $1,800. In this case, you would have a DTI ratio of 36%, because $1,800 / $5,000 = 0.36, or 36%.
You May Need to Acquire Private Mortgage Insurance (PMI)
If you obtain a conventional mortgage loan with a down payment of at least 20%, you won’t be required to obtain private mortgage insurance, or PMI. However, PMI will be required if you make a down payment of less than 20%. PMI helps to protect the lender in the event of default. If you will need PMI, this is significant, because PMI payments can add a substantial amount to your monthly financial obligation. Those who have PMI can expect to pay somewhere between 0.15% to 1.95% of their loan balance in PMI fees on an annual basis. This is typically not a small sum.
Your Credit History Will Be Scrutinized
When you apply for a mortgage loan, you can expect that your credit history will be closely scrutinized by your prospective mortgage lender. This is only natural. Your credit history provides the lender with a snapshot of your financial history and gives the lender a sense of your current capability to meet your financial obligations. It is a basic part of the risk assessment performed by the lender. There is no real minimum credit score required to obtain a loan; however, those who have scores above 620 should feel confident about their situation. This is assuming that all of the other criteria are satisfied.
It should be noted that, in addition to your likelihood of obtaining a loan, your credit history will impact the interest rates you receive if you obtain a loan. The higher your score, the more likely you will receive superior interest rates.
You Will Need a History of Steady Employment
Lenders want to be confident that you will have no issues repaying your loan. Consequently, they will want to see evidence of steady employment. When you apply for a loan, you will need to provide W2s or other documents which give proof that you have a record of stable employment. The length of time required will vary depending on the situation. However, in general, lenders will require evidence of at least 2 years of stable employment in the preceding 2 year period. A longer period of stable employment will help increase your likelihood of obtaining the loan.
Again, this is general information which should be used to guide you through the mortgage loan application process. You may encounter different things in any given situation. However, these facts should be adequate to give you a rough sense of what you’re likely to encounter when you apply for a mortgage loan. To learn more, you should contact us and Apply Now to start your process. You can check mortgage rates and see what sort of rate you can obtain.