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Health & Fitness

7 Golden Rules For A Home Loan Approval

"You have the right to remain renting; anything you say or give to us could be used against your dream of owning a house. If you cannot afford this loan..." This is how you interview for a home loan.

If buying a home is on your list of "New Years Resolutions" there are a few things that you should be prepared for. A loan approval for a well-qualified home buyer used to be almost like a formality but not any more. Due to the mortgage meltdown of the last few years, we've seen a dramatic change in the way home loans are underwritten.

Loan officers are trained to read and analyze tax returns, bank statements, application forms, job evaluations and written explanations. The switch from the infamous liar loans, aka "Stated Income" to now "Full Documentation" for every single loan, has had a tremendous impact on the real estate industry.

Is there anything that the applicant for a home loan can do to smooth the process, and stand a fair chance of getting a purchase loan approved?

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If you are ready to open your soul, here are 7 steps you should understand that will help you get prepared for such an ordeal.

1. Declining Income - As companies downsize and reduce their number of employees, and sometimes reduce the number of hours worked for those who stay, only the current lower income will be considered. The underwriter would now question weather the company the applicant works for is going out of business, this investigation can delay the entire process.

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2. Credit report - Well before home buyers apply for a loan they should be very careful as to how many inquires are made and for what reason. They should keep documentation to show the reason for the inquiry, or if they had any dispute for items showing in their report.

3. Continuous Job History - Buyers have to be ready to explain in writing every single gap in their employment in the last 2 years that is longer than 2 months. More than 2 months out of work and the loan most likely will be denied.

4. Bank Statements and Deposits - Any large deposits into the buyers account within the last few months will raise a red flag for the lenders. They will ask to see where it come from and why. They call this a "paper trail" so make sure you can explain it and prove it.

5. Buyer's Tax Transcripts - The lender will ask the IRS for a copy of your last 2-plus years tax returns. They want to see if you have had reimbursed Business Expenses and/or Business Losses.

6. Lower Debt to Income Ratios - Most loans are now analyzed via a Desktop Underwriter, a maximum approval ratio of 45% of income is the rule. The borrower however has to have extremely great compensating factors to even try for a higher approval ratio but it will never go above 50%.

7. The Appraisal or Appraisals - On May of 2009 the appraisers come under a new government rule called HVCC. Low appraisals are now the norm and buyers sometimes have to pay for more than one appraisal if the first one come in low and the seller could or would not negotiate.

Even if you are not thinking about buying a house right now, start saving all your papers, clean your credit, and be careful who you co-sign with. Do not ask for a credit report too many times. If there are issues on the report, make sure you document your dispute and keep a neat and clean file for future reference.

If you are trying to get money for a down payment from friends or relatives, start early enough, so as to show that those funds have been in your account for a while. 

Remember, today you are considered guilty of not having enough money or income or credit, until proven house-worthy by the lenders. Once you pass this test and you get a Letter of Pre-approval, you can call your preferred Professional Realtor and start looking for a home to buy.


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