Refinancing Pitfalls.

First, you have the searching process. You’ve got a list of things you’re looking for in a home. Sometimes, it can seem like you are looking forever before you finally find anything that comes close to what you desire to live in. Flash forward, you finally have found the home of your dreams afters months and months of endless Google searches and tours with your real estate agent.

You found the home you love in the neighborhood you’ve been eyeing. The one that checks all of your boxes: open concept, large master bath, two-car garage, hardwood floors and more. You’re in love! So, is that the end of the process? Unfortunately, you’re just now getting started. Now the real not-so-fun part begins: the paperwork process.

The next steps include finding a lender, gathering all needed information and documents, and beginning the underwriting process. Buying a home is a large undertaking, and unfortunately it’s not all smooth-sailing. Sometimes, there are bumps in the road. When it comes to real estate financing, there are usually two points at which things could fall through in: either the borrower’s financing or the property check. So, what can go wrong during mortgage and closing? We’re here to prepare you so you’re not caught off guard.

Mortgage underwriting is when you submit your application for a mortgage and an underwriter reviews. Essentially, this is when they’ll decide if they think you’ll be able to afford and pay back your mortgage or not. Underwriters are looking for the 3 Cs according to Freddie Mac:

Credit Reputation: this is where they look at credit scores, bankruptcy/foreclosures, mortgage delinquencies, credit accounts, and the borrower’s request for new credit in the last year. Is the borrower’s credit in good standing? Do they have any marks on their credit that are a point for concern? This is where the underwriter will dig deeper into your credit history to answer those questions.
Capacity: here they consider debt radios and how much money you make. They’ll look at qualifying monthly housing expense-to-income ratio or monthly debt payment-to-income ratio. Are you self-employed or salaried? All of this along with the characteristics of the loan you’re seeking play into the capacity category. The lender wants to see that you have a stable income and not a lot of debt. This ensures the lender that you won’t have too much boggling you down. They want to be sure you can afford your mortgage.
Collateral: what are you putting on the line for the loan? Here they’ll look at your total equity/down payment, property type, and what the use of the property will be for. Collateral is essentially an additional form of security for the lender. If you can’t pay your payments, collateral assures the lender that they’ll be okay if you default on your loan.