Are you dreaming of home ownership?
Have you spent countless hours surfing the Internet looking for that perfect house? If so, we bet you’re getting excited about making your dream a reality.
Whether you are a first-time homeowner or an experienced buyer we have some important tips for you to ensure you feel confident that your home buying process will go smoothly.
We understand that applying for a home mortgage can be somewhat unnerving especially if you’re not fully aware of how the process works. Before you start on your home buying journey, we encourage you to read through this mortgage guide and make sure you know what lies ahead.
Let’s start at the very beginning - even before you start the pre-approval process.
We don’t want anything to jeopardize your chances for being approved for a home loan, so we have come up with a list of all the things you need to keep in mind before applying for a mortgage. We want to make sure you are a good candidate to get a loan so follow these tips before applying for a loan.
- Shop Around - Any market has thousands of mortgage brokers, and each broker has access to hundreds of home loan programs. Whatever your circumstances, there is a home loan out there to suit you. The more mortgage brokers and financing professionals you speak to, the more likely it is that you will encounter someone who knows the home loan program right for you.
- Gather and Secure – Most lenders will have a standard home mortgage package they’ll provide you. This is the first step in gathering and securing the paperwork the lender will need to process your loan application. Typically, you will need to provide the following:
- A month a recent pay stubs
- Two years of tax returns
- Three months of bank statements
- Documentation on any large (non-payroll) deposits or withdrawals
Know What you can Afford – Knowing how much you can afford will gain you more respect from the listing agents. By knowing how much home you can afford before you start shopping you will avoid wasting your time looking at unaffordable properties, and the REALTOR® will be more than willing to show you the homes in your price range. Most home lenders use the 28/36 rule. This means your monthly mortgage payment can be no more than 28% of your gross income. Your total debt, including potential mortgage, auto loans, and other monthly installment payments must not account for more than 36% of your gross income. Some lenders may be more or less strict than this, but this is a typical guideline to use to figure out what you can afford.
What is your Score? – Your credit score is one of the key factors in getting approved for a home loan. Know what your score is and work on raising it if you fall below the industry standard for home loans. You don’t need perfect credit to qualify a score of 620 or higher will do. However, if you fall below that standard, there are programs that look at a lot more than just your credit score and will qualify you with a lower score if you meet other requirements. A credit score is easily available at the three credit reporting agencies - Experian, Equifax, and Trans Union. A credit score will provide the lender with the information about the credit risk you are as a borrower. Knowing your credit score will tell you where you stand as a borrower and will determine the type of loan you can qualify for.
Pull your scores from all three of the major credit bureaus.
Make sure there are no mistakes and dispute any problems if you find any.
Pay off any debts that you can to raise your score.
Say Goodbye to Debt – As we mentioned above lenders like to see less than 36% of your gross income being eaten up with debt. Work on lowering your debt ratio before applying for a loan and don’t forget to keep a good credit history. Paying your bills on time is the main factor in keeping a clean credit history. Timeliness of payments holds the maximum points in your credit score. Your credit score decreases by 15-40% with thirty day late payments.
- Keep the IRS on your Side – Filling your taxes on time and current is a must when applying for a loan. Lenders will want to see two years or more of completed tax returns and will require you to sign a release allowing them to verify your information with the Internal Revenue Service (IRS).
- Keep Tabs on your Checkbook – One of the quickest ways to sabotage your home loan is not keeping your checkbook under lock and key before your loan is approved. Avoid making any large purchases before, during and through the closing process.
- Pre-approval - There are few things in life as disappointing as losing out on the home of your dreams due to not being able to secure funding. While the desire to get out there and search for that great home is understandable, it is vital to line up the financing you will need before you start shopping for a home. It will not be as fun as shopping for a home, but it’s so important. Getting pre-approved will let you know how much of a home you can afford and second it will show home sellers that you are serious about buying. Don’t confuse pre-qualification with pre-approval. Pre-qualification is a fast way to get a ball-park figure of what you can afford, but pre-approval is what serious sellers and agents rely on. The pre-approval process will take a little longer, but in the end, it is what you want to concentrate on before starting your house search.
Perfect! Now that you have been pre-approved don’t let your guard down.
Even after you’ve applied for a loan, there are things you need to be aware of to keep your new home dream on the right track.
- Stay Put – This is no time to go job hunting or switch how you’re being paid. Stable employment history is an important factor in securing a home loan. In most cases you’ll need to show steady employment for two years, so stay put wherever you are for the time being. However, lenders often will not derail the loan process if you change jobs in the same industry.
- No New Credit – Just as with the pre-approval process your debt-to-income is important to keep under check. Try to avoid any large purchases, don’t rack up your credit card charges, and by all means don’t co-sign on any loans. New debt obligations will increase your debt to income ratios and will defiantly jeopardize your chances of qualifying at the closing process. This will also affect your FICO score which in turn can lower credit score resulting in higher interest rate and even your eligibility for approval.
- Bank Changes – You wouldn’t think changing banks would be a big deal, but lenders like to see consistency between your accounts. They need to track your assets, so moving banks in the middle of the loan process make the qualification process difficult for them.
- Don’t Close Accounts – Homeowners often believe that having less available credit makes them a better candidate for a home loan. However, a big part of your score is the length and depth of credit history. Your total usage of credit in comparison to your available credit can hurt your eligibility.
We understand how frustrating this process can be, but remember that any little change in your income, assets or credit can affect the home mortgage process. The best advice we can give you is to fully disclose all and any plans with your loan officer before you do anything that could hinder your eligibility status. Stay on track financially, stay put in the job you’re in and keep a close eye on any new purchases. If you follow all of these tips, you’ll be enjoying that new dream home before you know it.
If you have questions about the mortgage process, please contact us at 803.622.4596 or stop by and see us at Weichert Realtors Caughman Company, 120 Ellis Ave Ste C, Lexington, SC.