Picking the right mortgage lender in Nebraska I am a local mortgage broker serving Omaha,…
How to qualify for a home loan in Nebraska
Are you looking for Nebraska home financing? There are a few things to consider before contacting a local loan officer.
To qualify for a home loan in Nebraska your credit scores, credit history, employment, income, and liquid assets will be reviewed in detail. A local lender will then determine what loan program you qualify for and how much house you can afford. The only way to know for sure if you qualify and how much you qualify for is to review all your credit and finances with a home loan lender. But here are some things you can do to get a head start.
Have you seen your credit recently?
Credit score
Your credit scores are going to determine if you qualify and what loan program is the best fit for you. The better your credit scores the better your rate and terms on the loan. Higher credit scores will also open up more loan programs and give you more options for financing. Perfect credit is considered 740+ but you can qualify for home financing with scores as low as 580. However, while you can qualify for a loan with scores as low as 580, we always recommend getting you scores to at least 620 before purchasing a home. It will drastically improve your options, your rate, and the cost of getting the loan.
Credit history
There are some options if you have a limited credit history, but generally lenders would like to see some active credit with at least a 12 month history. This does not mean you need debt to qualify. Having active credit cards with a $0 balance is still considered a credit history and in many cases is more beneficial than having active debt. The earlier you can start planning for a home purchase the better we can position you when you are ready to buy.
Short “thin” credit history
A thin credit history we will often recommend signing up for a small consumer card (Target, Best Buy, etc), use it a few times, and then keep the balance low or at zero. If you do not have 12 months to build a history there are a few tricks to quickly get a longer credit history. For example, if your parents have an active credit card in good standing they could add you as an ‘Authorized User’ and you would instantly gain all that past credit history. If you think you have a thin credit history contact a local loan officer and see what can be done as soon as possible to get you ready to buy.
Late payments and derogatory credit
Paying late on debt or having derogatory credit (collections, charge offs, judgments) has a serious negative affect on your credit scores, but they do not mean you will not qualify. There are things we can do to improve your scores and credit history even with late pays and derogatory credit.
If you are late on a payment the first thing to do is catch it up. Credit reports track 30 day, 60 day, and 90+ day lates and the later you are on payments the worse it is for your scores. Multiple 30 day lates are common as well so make sure you are not continuously paying late on your debts. Once we have those caught up we can look at other parts of your credit that can improve your scores. Paying down the active credit that is showing late will help. We can also look at adding you as an ‘Authorized User’ on another card in good standing to help get you some good credit quickly.
Collections
If you have collections DO NOT PAY THEM until you have talked with a local mortgage lender. Paying off active collections rarely helps your score and often makes it worse. A collection with a zero balance can actually be more harmful than an aged collection showing a balance. Make sure to talk to a professional before contacting any collection agency. Having active collections does not necessarily prevent you from qualifying for financing and we may be better off using those funds to build up your credit history rather than pay off those collections.
Judgments
For active judgments, we will likely have to either pay those off or get them on a payment plan before you can qualify for a home loan. If we do need to put them on a payment plan, most loan programs will want to see 3 months of on time payments to the plan so it is important to get those started well before you find a home. If you think you have judgments contact a local mortgage professional who can help you set up a payment plan.
How does your employment and income look?
Employment history does matter for a home loan, but there are some misconceptions. A buyer does need a two year history, but it does not have to be two years at the same job and it does not have to be a consecutive two years.
Two years of employment, but several different employers
A buyer does not need to be at the same job for two years, but it is important to “tell a story” about any unique job history. If a buyer has had gaps in employment we will need to have a good explanation. The same goes for multiple job changes. There is no strict rule on these but it has to make sense for the underwriter to approve the loan. If a buyer is strong in other areas (credit, assets, down payment) it is easier to build a good case for approving a buyer with gaps or with multiple recent job changes. If you were getting an increase in pay with each job change it would make sense that you were moving so much. For gaps in employment due to illness or injury or you were raising a family we could build a case for that as well.
Long gaps in employment
Typically there must be a total of two years of job history, but this is where it can get a bit confusing. It is possible to have long gaps in employment and still qualify. For example, a buyer could have taken 10 years off to raise a family (that story makes sense) and returned to the workforce in the last few months. However, in this situation we must still show a two year work history. While not a super common situation, in this case we would look at the employment history before the start of the 10 year gap. As long as we can show a two year history in total, we should be good on employment.
There is a lot of grey area in verifying gaps and job changes
The biggest issue that will pop up on employment gaps and multiple employment changes is that there is a lot of grey area and “underwriter discretion” in the rules. If you think you might fall into one of these two areas the best thing to do is talk with a loan officer so they can put together the complete story. Once the loan officer has the story they can run it past their underwriter. The earlier you do this the better so you can avoid any issues after you have a purchase contract.
Salaried and hourly income
This type of income is the easiest to calculate. For salary we will just take your gross yearly salary and divide it by 12 for your gross monthly. For hourly we will use your hourly pay times 40 hours (or your average hours worked) to calculate gross income. We can usually use this income as soon as you start the job (in some cases even before you start) as long as we can verify that overall two year history.
Commissioned income
Commissioned income is going to be treated similar to self-employed income. You will need two years of commission income and usually two years at the same job. There are exceptions to the two year rule if you moved from one commission job to another in a similar industry with similar commission structures. If you are receiving a base salary or hourly income AND commission, we will use your current base plus a two year average of your commission. If you do not have two years at the base plus commission job we can only use your base income to qualify.
Overtime and bonus income
If you receive over time or bonus at your hourly or salary job we will need to see a two year average of this as well. Similar to commission, if you have not received it for two years we will likely only use your base income to qualify. We will typically use a two year average, but if your bonus or overtime is declining we might only be able to use the lower recent year. If there is a significant decline in bonus or overtime we will need a good reason for the decline in order to use it.
Self-employed income
This is the tougher one. The mortgage market has still not quite figured out how to handle self-employed buyers and it often puts self-employed people at a disadvantage. We will use a two year average of your ‘Adjusted Gross Income’ that is the income after all your write offs. There may be some write offs we can add back into your income so make sure to talk with a loan officer and provide all your federal return information for the last two years. One advantage of self-employed is we can remove debts from your ratios if we can show they are paid out of the business bank account. Self-employed has a lot of little rules and nuances so it is especially important to talk with a mortgage loan officer early if you are self-employed.
1099 contract income
If you are a contractor, Uber driver, independent consultant, or anyone that receives a 1099 instead of a W2 you are considered self-employed. Even if your pay is salaried or hourly, if you are receiving a 1099 instead of a W2 you will be a self-employed buyer and fall under all the self-employed guidelines.
Where will you get your cash to close?
All home loans will require detailed documentation of your assets. Any cash needed at close has a specific way of being documented and explained. This is usually the part that frustrates most buyers so knowing exactly what is expected early will help smooth out the home buying process.
Cash in the bank
This is the easiest way to verify funds. If all of the money you need to close is sitting in your bank we just need two months of complete bank statements. I know many buyers do not receive bank statements and just go online to view their account activity. But for a home loan online print outs are not acceptable. All home loans still require complete bank statements with all pages. The last page of a statement is often blank but we will still need it. A two month history is required because all loans will require all large deposits be documented and explained. A large deposit is considered any non-payroll deposit that is larger than 50% of your gross monthly income. If you make $10,000 a month, any deposit over $5,000 will have to be documented and explained.
Using retirement funds
If you plan to take funds out of a 401k, IRA, or other retirement accounts there are a few things we will need. First we will need the ‘Terms and Conditions of Withdraw’ to verify the terms of taking funds out of your retirement. We will also have to paper trail the money going from the retirement account to your bank account.
Selling personal property for funds
Personal property can be sold for funds needed and if they are small (less than 50% of your gross income) we will likely not have to document them. But if you are selling large items (most common is a car) there is required documentation. We will need to verify exactly what you sold. We will have to document the sale with a ‘bill of sale’ and the money deposited (do not accept cash for payment!). Finally we will have to verify that you sold it for a reasonable price. In the case of a car, we will need the blue book value to make sure it was a legitimate sale.
Gift funds
For most loan programs a gift from a relative is acceptable. We will need a letter signed by the buyer and the donor stating it is, in fact, a gift. In most cases we will also need to document the donor had the funds with a copy of their bank statement. On certain loan programs there are ways around this. If the donor gives the money directly to title we can avoid having to document their funds. This is usually the biggest roadblock for donors who, understandably, do not want to hand over their bank information.
Funds from the sale of a home
If you are selling your home and buying one at the same time we can do that on the same day. For the sale of your home we will just need a copy of the contract and a seller net sheet from your agent. The seller net sheet estimates how much a seller will receive after all fees and Realtor commissions. If you have an existing lien on the property, title will order a pay off to get the exact amount of seller funds. Once we have that it is just a matter of closing on the current house and transferring the funds over to the new house. It takes a bit of time, but, if everyone involved in the transaction knows what they are doing, this is a simple process.
Taking out a loan for funds to close
In certain situations down payment funds can be borrowed. You can take secured funds out to use towards your cash to close as long as you still qualify with the new debt payment. The most common secured loan used for a home purchase is equity from another home. If you currently own a home it is possible to take out a loan to cash out some of the equity towards a new house. There are a few moving parts to all of this so it is important to sit down with a local mortgage lender to discuss options.
I know this is a lot, but don’t get overwhelmed
Okay so there are a lot of rules to home lending. I tried to go over some of the most common ones, but the rule book for Fannie, Freddie, FHA, and VA are each almost 1000 pages long. Now I know that sounds like a ton of rules…And it is. But we can help walk you through it and there are things you can do to make getting through all the rules and regulations easier.
The single most important thing you can do is talk with a mortgage professional early in your home buying process. If we have time to review your situation we can make sure nothing surprises us after you get a contract. You also have the option to pre-underwrite your loan before you find a house. This is the best way to start the home buying process. Underwriting your loan before you make an offer will give you the peace of mind of being completely approved. A pre-underwrite also improves your chances of getting an accepted offer. If a seller sees that you are already approved when all other buyers are just pre-approved, they are more likely to accept your offer.
If you are purchasing a home in Nebraska and want to know more about qualifying for a home loan, we can help. We are local and can sit down with you to go through the process.
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