You have probably been dreaming about owning a home for years and years and perhaps you are finally at the point in which you feel like you are ready. You have rented long enough, have saved some money, been scoping out houses for a while, and now you are ready to take the plunge. If this is the case, I’m sure you understand that you will have to obtain a mortgage loan, unless you are fortunate enough to have cash for the house.
If not, it might do you some good to learn how you can impress your lender because without a loan, you won’t be able to get the house you have been dreaming about. Obtaining a mortgage loan might not be as simple as you think, as the requirements have gotten stricter since the financial struggle back in 2008. Remember all the people who ended up foreclosing on their homes because economic times became tough? The banks took a very hard hit, so they revamped their loan requirements some. To be sure you meet the requirements, read through these tips for getting your finances in order before heading to the loan officer.
Have a good credit score. Your credit history is very important when it comes to impressing mortgage loan professionals. If your score is below 700, it means that you haven’t done a wonderful job managing your finances in the past or perhaps you just don’t have a lot of credit history yet. If you don’t know what your credit score is, there are several companies that allow you to obtain one free credit report each year. Experian and Equifax are two such companies. Find out what your credit score is so that you can have something to work with.
To increase your credit score, be sure that you pay your bills on time month after month and do your best to pay off all of your credit card debt. If you can’t pay off your credit card debt, pay as much as you can each month and do not just pay the minimum payment due. If you increase your credit score, you may be able to be approved for a lower interest rate on the mortgage loan, which will save you a lot of money over the years.
Pay off your debt. Do all you can do to pay off your debt before seeking a mortgage loan. If you have revolving credit card debt, work overtime, get an extra job, or cut down on recreation in order to pay it off. If you have taken out a personal loan or automobile loan, try to pay these loans off or way down as well. Your amount of debt certainly impacts your credit score so the less you have, the better. Though you can still qualify for a mortgage loan with some debt on your plate, the interest rate may simply be higher than if you were debt free.
Have ample proof of income. Be prepared to have various ways to verify your income. You will have to come up with tax returns, pay stubs, and W-2 forms to prove that you have consistent income. One of the reasons that so many people got into financial trouble during the financial crisis was because they were approved for mortgage loans that they could not adequately afford. The banks did not do enough checking and verifying and when tough times came, consumers and banks both found themselves in a big financial mess. If you are self-employed, it will be important to furnish the past few years of income tax returns to the bank so that they can see that you have consistently earned adequate income. It might be a little more difficult to obtain a mortgage if you are self-employed, but it is possible.
The bigger the down payment, the better. Most banks will require that you have a certain percentage to put down on a home purchase. The bigger the down payment, the less the bank has to loan you, which gives you brownie points in securing a loan. By saving up for a sizable down payment, the lending officer understands that you are serious about purchasing a home and that you are doing well with your finances. If you are barely scraping by and have a small down payment, banks might tell you to wait until you are in a better spot financially. Put as much money as you can each month into your savings account in order to build, build, build your finances. It will certainly be worth the discipline.
Have your career and finances in order. Bank lenders want to see adequate income from you and a solid career. If you have gaps in your employment or you are missing tax returns, W-2s, etc., it won’t serve you well. If you have just begun working a new job, you might want to work for 6 months before trying to get a mortgage loan.
Bank lenders look at the numbers, but they also take into consideration your job, length of time at your job, debt to income ratio, and more. If you have declared bankruptcy in the past, this could hurt your chances of securing a loan for a while. Get your career and finances in order before you head to the bank for a mortgage loan. If you don’t know what your financial picture should look like in order to get a loan, you can always sit down with a lender and ask them for advice. He or she should be able to paint you a picture of what you can do to secure a mortgage loan in the future.
If you take the time to work on these tips, you will certainly be able to impress your lender and secure a home loan. Purchasing a home is a wonderful feeling and if you walk into that office with your head held high, finances in order, and a good credit history, you should be good to go!