🕦8 min. read
Understanding the mortgage process before you apply can help you prepare, save money, and get you closer to your dream home.
During the pandemic, people are looking for a new home for obvious reasons. The pandemic drew a lot of people away from the more condensed urban areas where everything was right at their fingertips, then into an area where they could create a life for themselves and their families or their potential families or their extended families.
A lot of people are considering applying for a mortgage loan which can be overwhelming because of the long step-by-step process that they will encounter throughout their application. Not only that, the housing market these days is highly in demand as the prices are up and the mortgage rates are rising. Now, we know there is a big possibility that all of these people, including you, are looking for advice or a refresher about this process. But before getting into details let us ask you this,
Are you a first-time homebuyer, or are you someone who is buying again after a long period of time?
Whether it is your first or third time purchasing a home, this discussion will benefit you as Andrea Burroughs from Guaranteed Rates will help you understand how a mortgage works and she will also give you some notes you have to consider in order to help you navigate the process with confidence.
See also: How To Get A Mortgage
In this feature, Andrea mentioned that the rates in today’s market made people upset because of the percentage you have to pay on a 30 year fixed rate. Even Britain's biggest home loan lender raised its standard mortgage rate. Though, people should understand that this is not the only reason for the market to keep going and that it is inevitable and it is just the way that our economy works.
Furthermore, qualifying your income for a mortgage is another step to reaching your dream home. The lenders will verify the source of your income and as well as check if it is consistent or not. Having this information will help them see what they can do to qualify you for the loan and also qualify you for the house that you can afford so it is best if this is discussed during the process.
Now, some people might be thinking that the benefits that they are using for the last couple of years can be used as an income but unfortunately it cannot be. But there are some important tips that are mentioned to help you qualify your income for a mortgage.
Tips on qualifying for a Mortgage
- Even though the primary need for your income base is usually two years of earnings, unemployment income is still not considered as income. But what they can consider using is the Social Security income or even the interest income. For example, if somebody has turned to early retirement or even early partial retirement and is applying for a mortgage loan, then, they use the pension funds to make it happen.
What is important is having proof about your income consistency for the last two years to qualify for a mortgage.
- Being a W2 employee is not the only way to buy a house. You can also be self-employed. The government is very aware of some of the tax benefits that people have when they are self-employed. Even if they are not issued to 1099, that just comes down to what appears in your federal income tax return.
- Andrea mentioned that mortgage lenders like her will also verify what is in your income tax return. They will look at Schedule C and the other schedules that you have written off that qualify as income. Then thereafter, they can qualify you for the house that you can afford.
- In the state of New Jersey, you may run into taxes. The property taxes make a bigger difference in the amount that you can qualify for even less than what the mortgage amount is.
- It is important to know your mortgage lender. Consultations are mostly done online today but it is better if you are able to meet and get to know them personally because they will be the ones to collect information from you that is quite confidential.
- You should also take note that when you are planning to apply, you should have complete papers that are legitimate from beginning to end. Why? It is very important for qualification purposes and the government is very strict when auditing the mortgage company that you are going to work with.
More insights from Andrea:
- When you are thinking about relocating but you are not able to do so, you might as well consider refinancing your house instead.
- If you think a home equity loan is reasonable for you, then Andrea will guide you in that direction as what she wants to do is to see what would benefit you more.
- There's a lot of pre-work that goes into this process especially when there are delays but Andrea and Guaranteed Rates know how to strategize and make closings stress-free.
- If you are also leaving the state right after selling your home, there are a million reasons that people need them. There are a million reasons that they should at least have that conversation with us.
Q&A with Andrea
Dennis: What advice do you have for schedule CS? What are the things I should be looking out for, with my clients and how has that changed recently?
Andrea: So the expectations seem to be the biggest issue. The expectation is that they can show a year's worth of income, maybe on line 31 of their Schedule C or line 32 of their other schedules that they're now showing enough income.
You need to have at least two years, especially if you're self-employed. I have programs where if you come to me and you're a W2 employee, we might not even need a tax return. The second you own more than 25% of that business, they're going to want a full federal return. It doesn't matter how many umbrella companies you have over you. They're aware that you're now fully responsible for a partnership property that's in Englewood, that's $80,000 in taxes a year. You just have the plan, having a plan in advance, not just assuming that you're going to do it for one year, you're going to pay your dues and you pay your taxes. They have to give it at least a full two years. They're going to ask for every schedule in that federal return, they're going to ask for every business schedule, and that's where you want to show the income. So after all the write-offs, you need to show some adjusted income all the way at the bottom of that schedule C - I think it's line 31.
Dennis: How has COVID impacted that as far as with the subsidies and different pieces? How are people doing that?
Andrea: That isn't one that we do often run into. So we had one instance where that happened and we actually showed, we showed 18, 19, and 20. And then if you have something, even if it's not an official tax return that you're filing for last year, we'll take that. We'll take 19, 20, and 21 just to show that it was legitimately the pandemic that affected their business. And they know that. So as long as they can show an additional year before after they'll make it work, we can make it work.
Drew: If someone is considering refinancing, is there a magic number as far as how much you're going to save or pay? Like, save per month that people should look for when they decide to refinance?
Andrea: So the rule used to be at least 1% difference in the rate that doesn't really apply anymore because more people are strategic about the reasons that they're refinancing.
Let's be honest. If I give you a 30-year mortgage, your payments are never going to change. Now you're paying into it for 10 years, but somehow your payment has gone up because your property taxes have gone up. So it's really an individual reason if they want the payment that they have, when they first took the mortgage out, I can help them get there.
If they want to reduce the amount of time they have left on their mortgage and the overall interest that they're going to pay on their home, I can help them get there. There's no real magic number anymore. I would say anything that is going to achieve what their goal is. And that's kind of the conversations that we're having. What is it that you're looking to achieve? It's an open-ended one. And we go from there.
Finding the right home for you is just one of the small steps in the mortgage process. Applying for it is more complicated than you think. It is a whole process that is fully made up of multiple steps that should be done correctly. There are some steps where the lenders are yet to dive into your income, finances, and any other legitimate documents (e.g. employment information, credit history, et cetera.) that are needed in order to ensure that you can qualify for the loan.
Are you looking for a way to make your application stress and worry-free? Andrea along with Guaranteed Rates got you covered! They will help you determine which loan is best for you and they will also guide you during the whole process for you to navigate each step smoothly.
ABOUT ANDREA BURROUGHS
Andrea is a Business Development Coordinator from Guaranteed Rates. She is passionate about working with buyers of residential homes, investment properties, and second homes. When you work with her, you can surely complete your mortgage transaction!
Get to know Andrea more!
- How To Get A Mortgage
- The Key to Getting the House that You Want
- Helpful Advice When Selling or Buying Real Estate
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