November 21st, 2014 8:50 AM by Jackie A. Graves, President
Before you start looking for a home, you need to pre-qualify for a
loan. This process involves a quick analysis by a mortgage officer to see
if you have all the necessary financial qualifications to buy a
If your application isn’t accepted, you won’t be able to pre-qualify for
a loan to buy your home right now, but there are things you can do to turn
your situation around. Of course, managing these areas long before you meet
with a mortgage officer is the smart way to go.
Here are some tips to help you handle key issues in the loan-approval
1. Improve your credit score
While different lenders have different credit score requirements, you’ll
likely need a good credit score – 680 or higher – to pre-qualify for a loan. If
your scores aren’t high enough, there are a few steps you can take to improve your ranking:
Order your credit reports: Order a copy of
your credit history from Experian, TransUnion and Equifax. Comb through your
reports and dispute any errors you find. Errors are removed or corrected on
your report within 30 days.
Pay down debt: Debt accounts for 30% of
your FICO credit score. Paying down debts will raise your score.
Pay your bills on time: It may take several
months, but paying your bills on time will improve your credit scores.
Consider a rapid re-score: If your score is
close to 680, you can work with your loan officer to do a rapid re-score, where
you can quickly make repairs.
2. Stay in one job
Lenders want to see that you’ve been working steadily in the same line
of work for two or more years at the same location before you can pre-qualify
for a loan. This shows stability and reassures them you will continue to repay
If you haven’t been working that long, aim to stay with your current
employer (or in your career field) until you reach the two-year mark. Changing
career paths will hurt your chances to pre-qualify for a loan.
3. Maximize income
If you aren’t making as much money as you need to pre-qualify for a loan, you have a
Get a pay raise.
Find a co-borrower with good credit. Their
income added to yours might make the loan possible.
Look for a lower-priced home that you can
4. Build financial assets
Lenders like to see that you have contingency money in your bank account
— about two to three months of mortgage payments. Many lenders also require
proof that your contingency funds have been in your account for at least 60
days before you can pre-qualify for a loan.
If you don’t have enough in your account, you can either borrow the
needed funds from family members or start saving your own cash. However, keep
in mind you’ll need two months’ worth of bank statements to prove you’ve had
your contingency funds for the required time.
These four tips can assist you in reaching your goals when it comes to securing the mortgage necessary to
buy a home, and even if you haven’t been pre-qualified previously, following
these steps can to you to a place where you can pre-qualify for a loan.
By: Angela Colley | Updated
from an earlier version by Laura Sherman.
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