Previously, I shared secrets about getting approved for a mortgage if your debt ratio is too high and if you have filed bankruptcy in the past. One of the most frustrating things about the mortgage application process is the never-ending requests from your lender to provide “conditions,” or additional documentation, to explain or enhance what you already submitted. The rule of thumb is to provide as much documentation as possible so your file will be well organized and approvable after the first review. When you leave out important information, it raises additional questions and makes it harder to approve your case in the end. Minimize your frustration and accept the fact that you may get frustrated, bite your nails, cry, pray, or whatever you do when the pressure is on. It’s all part of the process. But remember, in the end, you will have your new home! The following information should help you in even the most difficult case.
1. Providing Bank Statements and Evidence of Funds to Close
a. Provide bank statements for at least two months.
b. There should be no non-sufficient funds (nsf) fees (you know bounced check fees) on any bank statements. This is a sign that you may not be ready to handle the responsibility of a mortgage. If you know you are going to purchase a home and you have a tendency to incur nsf fees, you should consider getting a RushCard in order to prevent this from happening.
c. Provide all pages of your bank statements and make sure you provide your saving statements as well.
d. Provide 401(k) statements, certificates of deposits, mutual funds, or any assets that you wish to be considered in determining your discipline and/or ability to get approved for a mortgage.
e. Explain any large deposits and provide proof. For example, if you received a tax refund, provide a copy of the check or your tax refund documentation. Large deposits that cannot be explained will not be considered as available cash for closing and your loan will not get approved. The reason for this is the lender wants to make sure you are not borrowing money (it’s okay to borrow from a 401(k) or other retirement account in most cases) and therefore putting yourself in more debt.
2. Documenting your Rental/Housing Payment History
a. You will need to provide (1) the last 12 cancelled mortgage/rent checks; or (2) a letter from your landlord indicating the date you began renting and whether or not you have paid your rent on time for the past 12 months.
b. In the event you have not paid a mortgage or rent within the past 24 months, you will need to provide a letter indicating that you have been living at home “rent free”. In this instance, your credit, down payment and other application details must compensate substantially for the fact that you do not have any housing payment history.
3. Getting Approved if You Have No Established Credit on Your Credit Report
a. If you do not have any established credit on your credit report, submit 3 or 4 references in the form of a letter from your creditor (utilities, insurance payments, cell phone, daycare payments, tuition, etc.) indicating your monthly payment and the confirming that you have had no 30-day or more late payments.
b. Submit a 12-month payment history for each credit reference if the creditor is unable or unwilling to provide a letter.
4. Letter of Explanation for Derogatory Credit
a. If you have any collections, judgments, late payments, or bankruptcies, you may need to submit a letter of explanation to your lender.
b. The letter of explanation should explain the following for each derogatory item: (1) why the bad/poor credit occurred; (2) what you have learned; and (3) how you will do better in the future.
