I am the luckiest guy in the world to be able to live in South Jersey and work in the mortgage business. Before I get to all of that, let me introduce myself as one of the new writers for Shore Local, where my focus will be real estate! My name is Jim Malamut, and I was born into the mortgage business. Back in the ’90s, my dad and late mentor, Bill Malamut, started Atlantic Coast Mortgage, which became the largest mortgage company in Atlantic County. In 2005, I graduated from Rutgers University and moved back home to start my career in the mortgage business – following in Bill’s footsteps. It feels like I started just yesterday, but I have now been working in the mortgage business full-time for 21 years. I’ve worked through some low points like Atlantic County becoming the #1 foreclosure market in the country, to the highs of today where Atlantic County has become one of the hotter markets in the country. I still strongly believe that real estate is the best investment you can make. It’s the smartest way to leverage your returns and create wealth for your family and their future families.
In my opinion, owning your own home will always be the American Dream, and I am the luckiest guy in the world to be able to help so many people make that dream a reality. While most buyers’ first phone call will be to a realtor, the realtor is going to tell them that before they can start looking at homes, they will need to be pre-approved for the mortgage. At this point, the realtor will refer them to a local mortgage company that the realtor works with and trusts. Realtors prefer to work with a local mortgage company, as the local mortgage company in turn works with local appraisers, title companies, insurance companies, etc. This creates a level of accountability amongst all parties.
Now, how does the pre-approval process work? To get pre-approved, you must supply your personal information to the mortgage company. This is going to include your full legal name, birth date, social security number, two years of employment and income information, address(es), and more. The mortgage company will then run your credit report. Even if you use credit reporting apps, the mortgage company will still need to run your credit independently. The mortgage company will then look at a combination of your credit score, income, debt, and assets to determine whether they can pre-approve you for a certain loan amount. In sum, the mortgage company must be able to ensure that you can afford the monthly payment that correlates with the amount you wish to borrow.
Your “debt-to-income” ratio plays an integral role in how much you can borrow. A typical rule of thumb is that you qualify to borrow approximately three to four times your gross annual income in terms of a loan amount. For example, if you are making $100,000/year, you will most likely qualify for a loan amount somewhere between $300,000 to $400,000. However, you may qualify for five times your annual income if you have no debt, or you may not qualify for any loan at all if you have too much monthly debt. That is where the mortgage company comes in and calculates how much you can afford.
The mortgage company will ask you to supply your income documents to get pre-approved. If you are a W2 employee, you will need to provide your last two years of W2s and last 30 days of paystubs. If you are self-employed or own rental properties, you will need to provide the last two years of federal tax returns with all schedules. If you are retired or are receiving disability payments, you will need to provide your “award letter” stating how much you receive along with two months of bank statements as proof of deposits and possibly two years of 1099s to show a history of receipt.
If you own multiple rental properties and businesses, you will have to provide more documentation than someone who is, for example, a teacher on a predictable salary. As Notorious BIG once said, “Mo Money, Mo Problems.” The reality is that the mortgage company’s job is to accurately calculate all your income and debt. The more complicated your situation is, the more challenging it will be to get to closing.
One big challenge that we face with pre-approving our older clients is technology and access to documentation. You must be able to log in to all your financial accounts and provide documentation to the mortgage company, oftentimes up until the day of closing. That can be a challenge for older borrowers who have everything set up on direct deposit and/or forget their logins for their accounts. It can also be a challenge for our younger borrowers who use their cell phones for everything. Mortgage companies cannot accept screenshots for bank account transactions, so that can be a challenge for borrowers of any age.
If you are getting ready to buy, sell, or refinance a home, please call a local lender to help you. Your realtor will thank you for not calling some online company that no one has ever heard of!
