With lending guidelines tightening up, here are a few tips that that will help you qualify for a home loan purchase or refinance today.
Establish Your Value as a Borrower
The most important factors in today’s guidelines are your credit history and your value as a borrower. Lenders want to make sure you are worthy of credit based on your credit history and they also want to know if you can pay it back.
Prepare Your Credit
- Do not make any big purchases. As tempting it may be to buy that plasma tv or leather sofa for your brand new home, a major purchase could jeopardize your credit history. It may not drop your score, but lenders will see these purchases as added liabilities. As a result, your debt to income ratio could suffer and you could pay a higher interest rate or worse yet, not even qualify for the loan product.
- Credit Inquiries. It is certainly a very savvy move on your part to shop around for the best deal, but keep your eye on the credit inquiries. In today’s market, lenders will not make an exception for your FICO if you miss the cutoff by a few points. Lenders see these inquiries as possible future debt liabilities. As long as you limit these mortgage inquires within the 25-30 day grace period - credit reporting agencies will understand you are shopping around for a good deal.
- Credit Score Preparation. If you are in the market for a new home or looking to refinance, I hope you know your credit score before you even apply. What I mean is that long before you enter the loan process, you should examine your credit. Don’t wait for your agent to let you know you could have qualified for such and such product if only your score was 40 points higher. Be proactive and take the steps to strengthen your credit so you can get the best loan terms possible.
Establish Your Income.
Now, I wish that you could boost your income if I simply told you to, but we all know that is another story. However, lenders are looking very deeply into your income these days, so it is important to you establish this value correctly.
- Gather your documents. Collect and file your pay stubs as well as your W-2 forms
- If you are self -employed. Make sure you have your tax returns as well as your profit and loss statements for the last 2 years.
- If you own property. Have your lease agreements to document the rental income and the current lender and loan information for each property
- Show me the money. If you document a certain income, lenders will want to see the supporting assets. Make sure you have the bank statements, 401Ks, or investment statements to support your income.
- Be Honest. Nothing wastes more time than having to deal with corrected documents and having to re-verify the numbers. Save your time and your integrity - be honest.
Bottom Line - Come Prepared
While your mortgage broker can work out the details, being prepared will speed up the process and give you a better chance at securing your loan sooner. In the last year, guidelines have not only become tighter, they have become more volatile. Over a weekend or even during the workweek - guidelines can change at a moments notice. By preparing yourself, you will have done your part to making sure you can qualify today.
Source: www.fairisaac.com , www.myfico.com
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Wow, I didn’t think about credit inquiries and how they hurt your credit. Good point. I guess I could take solace in knowing that if someone is viewing your credit report and there are several inquiries for mortgage loans, they may understand that I am in fact shopping around. Are credit inquiries really that big of a factor for your credit score?
Well credit inquiries are not as significant as your actual credit history itself - but again, especially when guidelines are tight, every last point counts. It’s fine to shop around, just make sure you know where and when your credit is being pulled. Typically, numerous credit inquiries may affect your score around 5-15 points. Out of a scale of 350-850, 5-15 points may not seem like a lot, but it can certainly make or break you in today’s lending standards.
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