Navigating the Mortgage Minefield

Even if you have stellar credit these days, there may be stumbling blocks in the road toward getting approved for a mortgage.

The smallest misstep can set back the process. Lenders check credit reports at the beginning and toward the end of the process, any changes are scrutinized and could be cause for dropped financing. A mix-up with a cable bill sent one couple back to the drawing board after the wife’s score dropped.

Even if your credit is spotless, your building may have issues. Many buildings don’t meet Fannie Mae and Freddie Mac guidelines: Some condos carry more insurance, for example. Another catch: A new IRS rule keeps Fannie from acquiring mortgages made in buildings where more than 20 percent of the square footage is commercial. Most of these requirements aren’t new, they are just more of an issue now when Fannie and Freddie are pretty much the only ones willing to buy mortgages from banks.

The options are limited for those whose loans are too big for government backing ($417,000 and $729,740, depending where you live.) Smaller lenders and credit unions often can be more flexible because they know their customers and local market better or may have a prior relationship with the borrower.

With home prices still falling in many markets, an appraisal below the purchase price puts the deal in jeopardy. That’s because a low appraisal means the buyer must come up with more cash or the seller must lower the price to keep the deal alive.

To qualify for a mortgage, you will need a job and at least two recent pay stubs. You also will be asked for two years of W-2 forms, proof of other assets and either your tax return or a form allowing the lender to get your return from the Internal Revenue Service. That means that items that reduce your adjusted gross income, like business expenses or IRA contributions, can reduce the loan for which you qualify.

If you put down between 20% and 25% of the purchase price, you will find yourself in a strange middle ground: You will avoid mortgage insurance, but you will pay extra origination fees because Fannie Mae considers this group to be its highest risk at a time when home prices may decline.

To help you get through the mortgage maze, contact us and we’ll put you in touch with a lending professional who can help answer all of your mortgage questions, and help you negotiate the mortgage minefield without letting some of these stumbling blocks trip you up.