September 28th, 2017 9:11 AM by Jackie A. Graves, President
While television commercials can make it seem like getting a
mortgage requires just a few clicks of a button, that's rarely the case in
reality. For most people, securing a loan to buy a home takes time, and means
intense scrutiny from the institution doing the lending.
not an overly pleasant project -- getting approved for a loan involves
having you full financial picture scrutinized. The bank or other lending source
will look at your income, your savings, your debt, and your bill-paying
generally no way around that if you need a mortgage, but preparation can make the
process go more smoothly. If you plan to apply for a loan, do these things
first and you can increase your chances while also making things easier for
© Getty Images Your credit score will determine your
eligibility for a loan.
Most lenders use FICO credit
scores, issued by the Fair Isaac Corporation. Scores, which
range from 300-850, come from data provided by the three major credit bureaus
-- Experian, Equifax,
You essentially have three credit scores, but in many cases mortgage lenders
will use the lowest one to rate your credit worthiness.
How these scores are
interpreted can vary, but Experian defines 300-579 as "very poor,"
580-669 as "fair," 670-739, as "good", and 740-799 as
"very good." Anything above 800 is considered exceptional.
Your credit score will be a major
determining factor in whether you get a loan. With a lower score you may still
get approved, but you will pay a higher rate.
© Getty Images Paying off your credit cards can raise
your credit score.
One way to immediately improve your credit score is to pay off
any existing credit card balances. Your credit score consists of payment history (35%), credit utilization (30%),
average credit age (15%), new inquiries (10%), and account mix (10%). Of all of
those, the only one you can really control in the short-term is credit
© Getty Images How much you can afford depends upon
income and debt.
There are two ratios your lender will use to determine how much
it's willing to loan you.
most cases mortgage lenders will let you spend 30% of your gross income toward
your loan payment. That means If you make $4,000 a month, you will be able to
afford a $1,200 monthly payment.
second factor is your total debt picture, including the potential mortgage.
This includes car loans, credit card debt, and any other money you owe. In a
broad sense lenders won't want this number to be higher than 40% of your
income. These numbers are not absolutes, but they give you a strong idea of how
much you can afford.
© Getty Images You will need two-years of taxes as well
as many other documents.
Mortgage lenders require a lot of paperwork. In most cases you
will need your past two years of taxes, at least two months of bank statements,
and documentation for any retirement accounts. You will also need your two most
recent pay stubs, as well as documentation for any non-work income.
© Getty Images Buying a car during the mortgage process
is a terrible idea.
Buying a car, a boat, or some other big purchase can lower your
credit score and increase your debt. Don't even consider buying anything big
until after your mortgage closes. Your lender will monitor your credit
throughout the process, so don't think that getting an approval means you are
© Getty Images In some markets condos require a larger
The rules about down payments vary depending upon where you
live. In Florida, for example, buying a condo nearly always requires that you
put 20% down. Obviously having to do that means you need more cash upfront, so
it's important to be aware.
© Getty Images Just because you have the money does not
mean you have to spend it.
Just because you can get approved for a certain level of
mortgage does not mean you have to spend that much. Do an honest appraisal and
decide how comfortable you will be with debt.
people are OK being a little poor for a while if the down payment plus the
mortgage payments causes a notable change in expendable income . Others would
rather have less house to minimize that.
which type of person you are before starting the loan process. That's important
because borrowing less than you could qualify for may come with lower rates.
By Daniel B. Kline - To
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