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98 Front Street is a condo approved by all lenders and allows up to 95% financing. 98 Front Street is a condo approved by all lenders and allows up to 95% financing.
It may be a buyer’s market, but beware if you need a mortgage. Underwriting is notoriously challenging. Since the beginning of the pandemic, however, many lenders have raised their qualification requirements. This means that more than ever before, applicant’s finances, job security, and down payment funds will be under scrutiny. Here are a few things potential buyers can do to prepare to go under the underwriting microscope.

Start Early

In the case of underwriting, the previous 60 days of your financial life will receive the most scrutiny, followed by the previous quarter. For this reason, if you’re thinking about applying for financing, be sure to start cleaning up your act sooner rather than later. Any suspicious deposits (e.g., a $5,000 gift from a relative overseas), unusual activity (e.g., a series of cash deposits or withdrawals over $2000), or overdrafts in the 60 days before applying for a mortgage will raise red flags that you don’t want going up.

Prepare to Get Prequalified, Preapproved, and Approved

As a rule, you should prequalify for a mortgage before even looking at properties. If you’re confident you can obtain a mortgage, you can technically skip this step, though it is not advised. Either way, prequalifying doesn’t mean you’ve been preapproved or approved.

Prequalification is simply a first step that confirms you are creditworthy. Prequalification also offers an estimate on how much financing your lender might provide.

The next and more important step is preapproval. During this step, you will complete a mortgage application, the lender verifies your information, and carries out an initial credit check. If everything checks out, you’ll receive a preapproval letter—an offer but not a final commitment to finance the purchase.

The final stage is approval or “clear to close.” Only when the lender issues a clear to close has the mortgage been approved and can the close proceed.

Understand that a Good Credit Score Is Just a Start

When it comes to credit ratings, start early. If you pay down all your debt, the impact will likely not become visible on your credit rating for 30 to 45 days. Also, a good credit rating may not be good enough in the current market. If possible, aim to bring your credit rating up well over 740 into the very good or excellent zone before approaching any lenders. But don’t stop there—even an excellent credit score may not be enough to get you through the underwriting process.

First, lenders don’t just look at one credit score but all three—Equifax, Experian, and TransUnion. Since these scores take different things into account, one score may be significantly higher or lower than another. In fact, you may find that your scores vary as much as 50 points. To prepare for underwriting, log into all three sites and check your scores.

Second, download your reports. Again, lenders aren’t just looking at your overall score, which is primarily based on the age of your accounts and history of paying bills on time. Lenders also look at other factors, including how many credit and retail cards are under your name, how often you open new accounts, and even how often you change addresses.

Finally, address any errors. If you have a lot of rotating debt, you’ll only be able to fix the problem by paying it off. If, however, your report says you failed to pay a ConEdison bill three years ago, which you did pay, you may be able to dispute this information and have it erased from your credit history. Disputing false information on a credit report isn’t easy, but in some cases, it is necessary and may make or break your ability to get through the underwriting process.

Get Ready to Explain Your Down Payment

Your down-payment or “earnest money” is the money you bring to the deal. In New York City, this is usually 20% or more. In rare cases, you may be able to put down just 10%, but this will generally limit your options for finding a mortgage, especially in the current lending market. However much you are putting down, be prepared to explain where and how you acquired the money in question.

If you’ve been diligently building up your savings for years, you’re in luck. Lenders prefer this approach. If your earnest money comes from a one-time payment (e.g., gifts, a signing bonus, or an advance on a book), you’ll have some explaining to do. If the money arrived recently (in the past quarter), expect additional scrutiny. Here, it is helpful to consider the following scenarios.

Scenario 1: You’re a writer, and you were just lucky enough to get a $70,000 advance on a novel from your publisher. The first half of this advance—$35,000—appeared in your account 30 days before applying for a mortgage. In this case, sourcing the deposit should be easy since you’ll simply need to provide evidence that this sudden windfall was a book advance from a publisher rather than a loan from a friend or relative or money you acquired doing something illegal.

Scenario 2: You recently got married, and you and your spouse received over $40,000 in gifts from generous friends and relatives. You’ve decided to use these gifts to top up a fund you had already started for your down payment. While most lenders are happy to overlook small deposits (e.g., a $50 check from your great aunt), larger gifts and certainly any gifts exceeding $2000 will need to be sourced. This will likely require getting a “gift letter” from everyone who helped you out. The letter must clearly state where the money came from, that it wasn’t a loan that you’ll need to pay back now or in the future. Some lenders may take sourcing a step further and even ask you to provide additional evidence (e.g., a copy of your relative’s bank statements to prove that their gift wasn’t coming from a borrowed source). This practice is invasive, and if a relative or friend doesn’t comply, it could complicate your underwriting process. For this reason, it is generally easier to wait a quarter or two before approaching lenders. After all, the longer the money is sitting in your personal account, the fewer questions asked.

Start Compiling Your 1040s, Paystubs, Bank Statements, and More

In addition to having a good to excellent credit score and a reasonable explanation for how you acquired your down payment, to get through the underwriting process, you’ll need to provide evidence that you have a steady source of income.

As a starting point, be prepared to provide 1040s for the past two years. Also, be prepared to provide W-2s for the past two years. In addition, you’ll likely be asked to provide two months of paystubs. If you’re applying with a spouse, they will also need to provide the lender with all these documents. If you have just started a new position, work on a contract basis, or don’t have a long employment history, you or your spouse may be asked for additional 1040s, W-2s, or paystubs.

Beyond providing evidence that you have money coming in, lenders will want to see how you’re handling this money. As a result, be prepared to provide checking account statements for the past two months and savings statements for the past quarter. Once again, limiting unusual activity during this timeframe is advised since anything that looks suspicious may raise a red flag and slow down your preapproval or final approval.

Beware If You’re a Freelancer or Contract Worker

Millions of Americans now derive all or some of their income from freelance or contract work. In the world of underwriting, however, freelance and contract work are still treated differently than other types of work, making the underwriting process especially challenging for anyone who relies entirely or partially on this type of income.

To prepare, anyone who is a freelancer or contract worker should be prepared to provide the following additional documents:

• Additional 1040s: As a freelancer or contract worker, be prepared to provide 1040s going back beyond the prerequisite two-year period.

• Profit-and-loss statement: You’ll also likely be asked for a profit-and-loss statement—a document, prepared by a chartered accountant, that clearly outlines your year-to-date net income.

• Additional evidence of active freelance or contract work: Lenders may also ask you to provide invoices (e.g., issued to clients) or other evidence (e.g., bank statements that show deposited checks from clients) to verify any claims made in your profit and loss statement.

In addition to having all the right documents on hand, there is one more consideration freelancers and contractors should consider—how to present their net versus gross income. Freelancers and other contract workers often write down their income by claiming as many expenses as possible. While it is generally advantageous to lower one’s tax liability, this can backfire when seeking financing for a home. After all, if you’ve been consistently writing down your income from $100,000 to $65,000, underwriters will evaluate your creditworthiness based on the lower amount. For this reason, if you’re thinking of applying for a mortgage, it may be advantageous to write off fewer business-related expenses in the two to three years prior to approaching a lender.

Brace Yourself for Delays and Additional Paperwork

Preapprovals last for 90 days. In the past, this timeframe was generally enough time to close a deal. Unfortunately, the pandemic has added considerable time to the underwriting process and made closing deals more time-consuming (e.g., since most closings no longer occur in person, sellers and buyers may need two to three days to sign all the required documents). Given these challenges, a growing number of deals are now stretching beyond 90 days. If this happens, you won’t be asked to restart the mortgage application process, but you will be asked to resubmit key documents. For example, if you submitted paystubs on February 1, but your deal hasn’t closed by May 2, you’ll likely need to ask to provide additional paystubs. The same rule applies to any other documents you submitted during the process, including bank statements and if you’re a freelancer, profit-and-loss statements. While resubmitting documents you’ve already submitted is frustrating, failure to comply may jeopardize your mortgage application.

Whatever happens during the underwriting process, being patient, organized, and compliant is always the best way to keep the process moving toward your goal—the purchase of your first home.

Entry-level homes allowing up to 90% financing
98 Front Street 98 Front Street exterior (Credit Aaron Thompson)
Common roof deck

270-Seaman-Avenue-01 All images of 270 Seaman Avenue via Douglas Ellimanoup
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246-East-51st-Street-01 All images of 246 East 51st Street via Compass
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185-Hall-Street-01 All images of Willoughby Walk via The Corcoran Group
From the Listing: Welcome to this lovely 667 SF one bedroom, one bathroom apartment in the well-maintained Willoughby Walk Cooperative in the heart of Clinton Hill. Low Maintenance of $816 includes taxes, water building personnel and services. All co-purchasing and guarantors scenarios allowed. Minimum 10% down. See floor plan and full details here.

160-East-91st-Street-01 All images of 160 East 91st Street via Compass
From the Listing: Carnegie Hill Gem! True one-bedroom in a prewar co-op with part-time doorman and live-in super. The apartment features very spacious, bright living room with three windows facing lovely 91st Street, open concept kitchen great for entertaining, remodeled bathroom, hardwood floors, high ceilings, great closets and a lot of charm. Very low monthly maintenance fee makes this apartment even more desirable. Building features part-time doorman, live-in super, elevators, laundry on the lobby floor, bike and storage rooms, and it is conveniently located in the heart of Carnegie Hill. Around the corner from 92nd Street Y, a few blocks from Central Park, Museum Mile, best shops and restaurants as well as 4,5,6 and Q trains and cross town buses. Cats are welcome. 90% financing allowed. See floor plan and full details here.

200-Congress-Street-01 All images of Congress Gardens via Douglas Elliman
From the Listing: PRICE JUST REDUCED!Located on one of the most beautiful leafy blocks in the highly sought after Cobble Hill neighborhood. This sunny and quiet one bedroom in a well established elevator coop is perfectly sized with a spacious entry foyer that can easily be a separate dining area, home office or library. There are hardwood floors throughout and great closets. The co-op allows up to 90% financing, pied-a-terres, co-purchasing, and gifts from parents as well. See floor plan and full details here.

279-1st-Street-01 All images of 279 1st Street via Compass
From the Listing: A Park Slope gem offering prewar charm and a fresh renovation in a bright one bedroom. This coop apartment boasts high parlor floor ceilings, original moldings, a south facing living room with a wood burning fireplace, a renovated open concept kitchen with dishwasher and a renovated bathroom with heated floors. The apartment also comes with a washer and dryer and the ability to hook up to a dryer vent. Other features include hardwood floors, wonderful southern light and a Lutron lighting system. This unit transfers with a dedicated storage unit, and there is additional bike storage as well. Close proximity to all the restaurants, bars, and shops on 5th Ave in buzzing Park Slope. Around the corner from the R train, and a short distance to the F and the G trains and the Barclays Center stop. Pets welcome, 90% financing allowed. See floor plan and full details here.

310-East-46th-Street-01 All images of Turtle Bay Towers via Compass
From the Listing: Welcome to the studio built for post-Covid living. Natural Light, High Ceilings, Large PRIVATE OUTDOOR SPACE and laundry on the floor. This spacious, open loft style studio with terrace is found on the 15th floor of Turtle Bay Towers, a luxury Condop (Coop with Condo rules) located at 310 East 46th Street. This investor-friendly building functions with condo rules: board interviews are not required for transfers or rentals, unlimited subletting is allowed (with short-term permitted) and sales only require 10% down. See floor plan and full details here.

520-West-23rd-Street-01 All images of The Marais via Sotheby's International Realty
From the Listing: Live on Top of the High Line! This Breathtaking sun-filled one bedroom is move right in condition. Right next to the Highline Park. Enjoy south exposures with your own balcony! Open kitchen with stainless steel appliances, tile wall back splash, cider wood cabinets with nickel hardware and granite counter tops. Wood floors and crown molding throughout. Bathroom renovated with all-natural tile. Self-controlled heat and air conditioning. The building is managed with condominium rules: unlimited subletting, pied-a terre, co-purchasing and 90% financing are all allowed. See floor plan and full details here.

3117-Broadway-01 All images of Fairview Court via Douglas Elliman
From the Listing: You Can Have It All! Size, Location & a Great Price! Spacious and beautifully renovated 2 Bedroom (1,000 SF Approx.) with a generous open floor plan. This apartment has both a den/Living room (Conv 3BR) and a family room which are open to the expanded, windowed eat-in-kitchen that has been fully renovated. 90% financing permitted with approval, plus Simple Board Approval. This is NOT an HDFC Building. See floor plan and full details here.

321-East-43rd-Street-01 All images of The Cloister via Compass
From the Listing: NO BOARD APPROVAL REQUIRED FOR THIS APARTMENT! 90% FINANCING AVAILABLE. Ask us for details. Sponsor sale/unit. Be the 1st to live in this gut renovated, Triple Mint home with an extra large living room, wide plank floors, high 9 foot ceilings, designer custom ceiling lighting, and huge eat-in, windowed kitchen with custom cabinetry. There is a stainless steel Bosch cook top, Bosch dishwasher, Bosch Microwave, Bosch Oven, Caeserstone countertops, and tons of kitchen storage. See floor plan and full details here.

202-West-92nd-Street-01 All images of 202 West 92nd Street via The Corcoran Group
From the Listing: This stylish prewar two-bedroom, two-bathroom duplex is situated in a classic Upper West Side turn-of-the-century townhouse built in 1890. Upon entering the welcoming upper level, you are beckoned by a sophisticated wood burning fireplace, living room with high ceilings, large open kitchen, bedroom/home office, and renovated bath. A spiral staircase leads to a lower level with barrel-vaulted ceilings, hardwood floors, and marble bath. 80% financing is allowed. See floor plan and full details here.

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Contributing Writer Cait Etherington Cait Etherington has over twenty years of experience working as a journalist and communications consultant. Her articles and reviews have been published in newspapers and magazines across the United States and internationally. An experienced financial writer, Cait is committed to exposing the human side of stories about contemporary business, banking and workplace relations. She also enjoys writing about trends, lifestyles and real estate in New York City where she lives with her family in a cozy apartment on the twentieth floor of a Manhattan high rise.