Mortgage application preparation kit

The average interest rate on a 30-year fixed rate conventional has risen from 3.6 percent two months ago to 4.6 percent last week. The reason for the increase is the jump in the 10-year Treasury yield, which has moved from 1.6 percent in early May to 2.6 percent currently. Although rates are still low by historic standards, the bond market has not seen a full percentage point increase in such a short time period since 1994. Those higher rates have started to cool off the bidding wars that you may have heard about during the spring. While there are still markets that hot (San Francisco, New York), the national housing market remains firmly tilted towards buyers, with prices about 25 percent below peak levels. That means that it is still a great time to buy. You should of course run the numbers and make sure that a purchase is right for you (check out this great rent vs. buy calculator from the New York Times) and if you are in the market for refi, I like this calculator from HSH.com.

What do you need to know about attaining a mortgage now? “The process has improved from a year ago, but it is still labor intensive. Borrowers need patience and perseverance” according to Mike Raimi, President of WCS Lending. Mortgages for new home purchases can take about three weeks to close, while refinancing can take longer – “anywhere from 45 to 90 days.”

If you are looking for a 30-year conventional mortgage with 20 percent down, the best rates are available for those with credit scores above 740. For every 20-point drop in score, the mortgage rate jumps by a quarter of a percent. If your credit score is below 620, it’s tough to get a loan closed, unless you qualify for the government’s HARP plan. (Credit scores do not have nearly as much impact on loans of 15 years and shorter.)

Whether you are trying to refinance or buy a home with a mortgage, here is your Mortgage Application Preparation Kit:

• W-2 (2 years)
• Tax Returns (2 years)
• Pay Stubs (2 months)
• Bank statements – all pages (2 months): You may also need to provide the lender with an explanation for any large deposits that have been made into bank accounts. This has more to do with beefed up anti-money laundering efforts than the mortgage process itself.
• 6 months of mortgage payments in cash reserves (sometimes less, but this is a good rule of thumb)
• Investment accounts: If bank accounts do not show adequate assets, lenders may ask for investment account statements.
• Donor letter: If a family member or friend is helping you with your down payment or providing cash for the re-fi, he or she may be required to provide a letter and may also have to present his or her account statements.
• Self-employed applicants: Must have 2 years of proof of self-employment and 2 years of tax returns. Gone are the days when self-employed borrowers can "add-back" tax preference items. While you may have used the tax code to your advantage, the bank will not cut you any slack - the numbers on the return are set in stone.