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Mortgage Guide

How to get a home loan

The Loan Approval Process - Getting to Yes.


You've submitted an application;. delivered your down payment and; signed all the documents. Now, you wait.

The best way to minimize the anxiety of waiting for a loan approval is knowing what is needed and submitting the proper documentation upfront. These basic guidelines will help you understand what every lender considers in approving a loan.

Income & Employment

Lenders have a reputation for only being interested in making money but, believe it or not, a mortgage lender is your partner. Mortgage lenders have a vested interest in approving as many loan applications as possible. However, their reputation and future success is also dependent upon whether those borrowers who are approved initially, continue to make on-time payments and eventually pay off their loans. Part of helping you become and remain a homeowner is ensuring your monthly mortgage payments do not exceed your ability to repay.

When evaluating your income, lenders look at your current salary but also look at your earning history over the past two years. Your employment history helps us understand the stability of your job and make reasonable guesses as to whether your income will continue. When completing your loan application, be sure to provide information for all jobs you have held in the past two years.  You will need to provide W2s and income taxes from the most recent two years and 30 days of paystubs.

 

Pro tip: Make sure that the paycheck stubs reflect your year-to-date earnings.

Assets

Lenders will need to know what type of assets you have. Assets include bank accounts, stocks, CDs, IRAs, and other real estate you own. Along with your complete loan application, you need to provide.

  • Copies of bank statements from all checking and savings accounts for the last two months.
  • Two months’ worth of statements for stocks, CDs, or an IRA account.
  • If you own other real estate property, provide the address, current mortgage holder, the account number, lender’s name and address, monthly payments, balance on loan, and the current market value of each property.

Review of these documents will help establish your ability to repay the loan.

Debts

Outstanding debts play a large role in determining whether you will be approved for a loan. Lenders will pull a credit report to see your debts but recently opened accounts may not be reflected on the report. Be sure you inform your lender upfront about accounts which are not yet showing on your credit report. For each account you may have applied for during the loan process submit the following information:

  • Initial amount borrowed or Credit limit
  • Company name
  • Address and phone number for verification
  • Monthly payment amount
  • Balance owed on account

The bottom line

Lenders compare your outstanding debts with your income to determine whether you are in a position to take on a mortgage loan. This comparison is called your debt-to-income ratio (DTI). We add your monthly debt payments and divide them by your gross monthly income. For example:

Gross Monthly Income: $5,000

Monthly debt

   

Car payment

$100

$1,750

College loan

$400

Credit card bill

$250

Mortgage payment

$1,000 

 

1750 / 5000 = 35%

 

Most lenders, including NewCastle, will approve borrowers whose debt ratios are 43% or less, provided all other information is acceptable. When it comes to DTI, lower is better.

Conditional Approval

While lenders believe what you tell us about your income and assets. They won’t issue a full approval until all the information has been verified. Lenders will seek documentation and verifications from other parties to support the information you give them. Until the lender is able to validate your income, hire date and bank balances they may issue a conditional approval. This type of approval means that our underwriter is mostly satisfied with the application, but you still have to fulfill certain conditions. Common conditions include:

  • Verification of hire date and salary from employer
  • Availability of funds for down payment, escrow account, and closing costs.
  • Homeowner’s insurance policy
  • Letter of explanation for a recent withdrawals or large deposits

Pro tip: Send the documents as early as possible to ensure a thorough review of your file

When it comes to submission of documents and other requirements, timing is everything. Your personalized Home Loan Dashboard at NewCastle shows outstanding documents in real time and our power app allows you to upload the requested items right way.

Click here to learn more about our power app (link to power app). You can also contact us to guide you through the application process.

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