Start early: Tips for a Smooth Mortgage Transaction
How to ensure you’ll be qualified
Written by: Jonathan Kulak
Last month, we talked about mortgage programs that are available with little to no down payment. This month we’re going to talk about how to qualify for them. There are a variety of factors that go into qualifying someone for a loan and determining how much they qualify for. The simplest way is to reach out to a licensed loan originator and let them do the work for you. You’re under no obligation to use a particular lender. If you don’t like the answer you receive then you can contact another lender. We see this a lot when a pilot contacts a lender who isn’t familiar with how we are paid. Make sure you’re talking to someone who regularly originates loans for pilots.
Here are some of the factors that go into qualifying:
- Credit Score: Your credit score is typically what most people think of when applying for a loan. Unless you have significant derogatory information in your credit file, or no credit at all, you’ll most likely qualify. Each loan program has specific minimum credit scores, but if one program doesn’t work then there is usually another program that will. A low credit score isn’t always a show stopper.
- Employment history: The length of time in your profession or at your employer can be a problem if you frequently change jobs or are planning on making a career change. Typically, two years in the same line of work or with the same employer is safe. On a side note, prior military service can be used to complete the two-year employment history as long as you are in the same line of work. For example, if you were a pilot in the military and are now flying for the airlines, your lender will be able to use your former military training to complete the two-year history. If you’re self-employed, meaning you don’t receive a W-2 from your employer, then you’ll want to have at least two years of tax returns supporting that 1099 or self-employment income to be able to count it for qualification purposes. This can be an issue for pilots if they want to count private Certified Flight Instructor work or they do contract flying. If you work for a flight school or an airline as a regular W-2 employee, then the lender would simply need to verify the two-year history. The rules are written to allow professionals with advanced training and education to qualify, even if they change employers often, as long as they maintain the same line of work.
- Debt to Income Ratio: Depending on the loan program, lenders typically allow borrowers to have somewhere between a 43-55% Debt to Income Ratio. To determine if you qualify, and for how much, your total monthly debt obligations, to include the expected new mortgage payment, (cell phone, cable, utilities excluded) are divided by your monthly income. For monthly debt obligations think minimum credit card bills, car payments, student loans, other mortgages, child support/alimony and any other loans outstanding. These numbers are taken off of your credit report. With that being said, your lender is going to be the best person to calculate your Debt to Income Ratio for you. Your income is going to include either your gross salary, minimum monthly guarantee, or an average of your actual flight pay over a year. If you have received any bonuses or profit sharing for a minimum of two years that can also be included in your income. Unfortunately, you per diem cannot be counted.
If you have a co-borrower on the loan, then their income and debts will also be calculated into the equation. Having a co-borrower can either help or hurt you depending on their total Debt to Income Ratio. Sometimes it is better to not have a co-borrower even if it’s your spouse. Your lender can run the numbers with you to determine what will work best for you specifically.
This is a short list of some of the important things to consider. As I said earlier, the only real way to ensure you’ll qualify and for how much is to reach out to a licensed loan originator. The earlier you start the process the less surprises you’ll have once it’s game time. Don’t be afraid to get connected with a lender sooner rather than later. The smoothest loans typically happen when a borrower reaches out about six months prior to purchasing. This gives you plenty of time to fix any potential issues and will set you up for success.
Until next month, please feel free to contact me with any questions at [email protected] or on my cell phone at 850-377-1114. I’m always happy to help a fellow pilot navigate the mortgage process. Also please checkout my previous articles that are available in the Oct ‘18-Jan ’19 Aero Crew News issues.
About the Author: Jonathan Kulak is a licensed mortgage loan originator at Trident Home Loans and an Air Force AC-130 pilot turned airline pilot and Air Force reservist. Jonathan is a distinguished graduate of both Texas A&M University and USAF Specialized Undergraduate Pilot Training. He has deployed into combat zones ten times and is a veteran of Operations Iraqi Freedom, New Dawn, Enduring Freedom, Resolute Support, and Inherent Resolve. He holds an FAA Airline Transport Pilot and Certified Flight Instrument Instructor license. Most importantly, he is a devoted husband to his wife Lauren, and the proud father of their four children. Trident Home Loans is a pilot/veteran owned/operated mortgage lender and licensed in 22 states. For more information visit www.tridenthomeloans.com, call 850-377-1114 or email [email protected]. NMLS # 1403506 | 65716