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GETTING A Mortgage

I recently read the results of a survey conducted by Jae Wang and Veronica Bravo for USA Today that showed that 42 percnet of the respondents thought it was more difficult to get a mortgage today than it was just one year ago.

Just 18 percent thought it was easier, while 18 percent thought it the same and 22 percent weren’t sure.

To be perfectly frank I’m concerned about their sampling methods when they have 22 percent not sure, but I’ll leave that to another month’s column.

What has happened in mortgage lending that resulted in 42 percent of potential mortgage borrowers thinking the process was going to be even more difficult than it was 12 months ago?

For starters, the new rules regarding Qualified Mortgages (QM) and Qualified Residential Mortgages (QRM) went into effect Jan. 15. These two new rules written at the direction of the Dodd/Frank mortgage lending reform bill have received a tremendous amount of press. In my opinion much more than deserved, but in the words of a former boss: “It is what it is.”

QM and QRM were actually just a reflection of what prudent lending practices have been for the bulk of my career. It doesn’t seem too crazy to require that residential mortgage borrowers have some equity in the transaction; that they have to demonstrate that they have a job and that job, or jobs in the case of co-borrowers; that produces sufficient income to repay the loan with principal reductions monthly over a 30-year period; and finally, we can all agree that a mortgage payment should be of an amount that permits the borrower to also put food on the table and pay for the other necessities of life.

So what does one need to do to prepare for that time when they are purchasing a first home, moving up to accommodate a growing family or downsizing later on in life? As a starter, preparation is the key and that can best be done with the help of a mortgage lending professional.

These qualified mortgage lenders can be found at your local bank or at a firm that is a member of the Mortgage Bankers Association of America, or in our area, a member of the Mortgage Bankers Association of the Carolinas.

Choosing your mortgage lender must include identifying an individual with a NMLS registration number (for more information about NMLS refer to the NMLS Resource Center at mortgage.nationwidelicensingsystem.org), with the help of your professional mortgage lender, you will be able to prepare for that seamless journey to a mortgage approval.

When you start on the journey toward approval of a mortgage loan, you can expect a thorough examination of your past and present financial history. Your mortgage lending professional will hold your hand throughout the process.

Come to your meeting equipped with a current financial statement showing all of your assets and liabilities. The asset column of your balance sheet will include cash held in banks, stocks and bonds held in brokerage accounts, retirement plans such as 401(k)s and IRAs, an estimate of the value of any real estate currently owned as starters.

Other assets that should not be overlooked include: accounts receivable, cash value of life insurance, equity in closely held business, owned vehicles and household possessions. On the liability side, fully disclose any and all credit card debt, bank loans, real estate mortgages and student debt.

With your personal balance sheet in hand, gather together all the supporting documentation you can find including: two months of bank statements, two months of brokerage and retirement account statements, 30 days of most recent paystubs and the last two years tax returns.

Coming prepared to your first meeting will get the process started on the right foot. From here your mortgage loan officer will go to work. A credit report will be ordered as well as an appraisal on the property you have chosen.

In the residential mortgage finance world that we live in today, you can expect your lender to require a credit score above 640, a total debt-to-income ratio at or below 43 percent and a Loan-to-Value (LTV), which is the lower of the approved value or purchase price, of 95 percent or less. Loans in excess of 80 percent LTV will require mortgage insurance. Of course, loan programs offered through the FHA or VA may provide LTVs up to 100 percent and some variances to the above guidelines. Additionally, other restrictions may apply if purchasing a second home or condominium.

Coming to your lender being fully prepared will make the process of securing a loan as stress-less as a full personal financial examination can be! Home affordability is the best it has been in the past 50 years, so don’t believe all you hear and get out and achieve the “American Dream” of homeownership!

Elihu Spencer is a local amateur economist with a long business history in global finance. His life work has been centered on understanding credit cycles and their impact on local economies. The information contained in this article has been obtained from sources considered reliable but the accuracy cannot be guaranteed.