Hedge Your Bets in a Challenging Mortgage Environment

The mortgage market is in turmoil, and lenders are hyper-vigilant. In such a cautious climate, borrowers need to have a backup plan in case they get turned down when applying for a loan. One idea is to submit multiple simultaneous applications.

If you expect to qualify for a no-hassle mortgage this year, you need to have good credit and good income. But many people don't have those credentials, and even some that do may still get turned down because lenders are playing it safe.

Lenders are saying "no"

Some loans are rejected because the purchase price of the house is too high, according to the lender's appraisal report. And many lenders are ordering multiple appraisals, so that they can hedge their bets and lend money based on the lowest one. While mortgage companies and banks strive to guard against bad loans, it's important for borrowers to have their own strategies in place to fall back on if their mortgage applications are unsuccessful.

Applications are multiplying

The Mortgage Bankers Association recently announced that mortgage application activity is on the rise, and has increased about 18 percent above last year's levels. But apparently, not all these applications are resulting in closed loan transactions. Many analysts observe that borrowers are applying for their loans with multiple lenders, as a way to ensure that one of the loans will be approved to facilitate the purchase or refinance of a home. They apply to various lenders, wait to see which bank or mortgage company approves the application, and then follow through with the one who responds first or with the best deal. You may want to adopt the same approach, to ensure that one of your applications is a winner.

Preparing your paperwork

Before visiting a lender, prepare for the meeting by accumulating a few important documents. These should include copies of your tax returns for the last two years, at least two month's worth of bank statements, and the most recent statement regarding any stocks, bonds, or mutual fund investments you own. Additionally, you'll want to show them a copy of your existing mortgage and proof of homeowner's insurance if you're applying to refinance. If you're buying a home and have already signed a purchase offer agreement, you should include a copy of that contract.

Most lenders will not charge for a loan application, but expect you to provide access to your credit report early in the process. That's because without checking your recent credit score, the lender is unable to determine how mortgage worthy you really are. You can often expect to pay around $20 to $25 to have a potential lender check your credit. If you apply to four or five different mortgage companies, it might cost you a hundred bucks. But when a lender says "yes," you'll be on your way to a new loan, which makes the added effort and cost well worth it.