November 20th, 2017 7:01 AM by Jackie A. Graves, President
you prepare, you can make things go much more smoothly.
many people, the most daunting part of the homebuying process isn't finding the
right house. It's getting a mortgage.
easy to understand why that's the case. Asking a bank or other financial
institution to lend you hundreds of thousands of dollars isn't something most
people do very often. In fact, for many Americans, buying a home represents
their biggest-ever purchase and the most they will borrow.
makes buying a house a rare event for most people — something that happens once
or only a few times in a lifetime. It's therefore understandable that many
homebuyers aren't prepared for the mortgage process.
even if you've never gotten a mortgage before, it's not that hard to make the
whole endeavor less miserable. By making some simple moves before you apply,
you can take some of the pain away.
1. Start early
a lender looks at your creditworthiness for a mortgage loan, time matters. If
you can start paying down debt well before you apply and pay off things like
car loans, that can help.
approve loans at least partly based on your debt-to-income ratio. That's how
much debt you have compared with how much income you have coming in. In
general, a lender doesn't want to see this ratio go over 43%, according to the
United States Consumer Financial Protection Bureau, but lower is better.
off a credit card or eliminating another term loan will improve your ratio.
That could increase how much you can borrow as well as improve your chances of
getting an approval.
You can't fix your
credit if you don't know what it is. (Photo: Getty Images)
2. Know your credit
credit score will also affect whether you get approved. Scores, which go from
300 to 850, are derived from how you use credit and how you pay your bills.
There are three major credit bureaus: Equifax, Experian, and TransUnion. Each
uses slightly different criteria, so your numbers with each won't be the same,
but this is the rough breakdown of how your score is determined.
of credit history (15%).
A better credit score
increases your chances of getting approved while also potentially lowering your
interest rate. (Photo: Getty Images)
3. Fix your credit
some parts of your credit can be fixed in the short term. The big one you can
have an impact on is amounts owed. Pay off your balances in full, and your
score will go up.
addition, avoid opening new accounts or doing anything that triggers a credit
check during the mortgage application process. A new account can hurt you,
because lenders don't want to see a customer have too much available credit, as
that lets them run up debt -- which could interfere with the ability to pay
Banks use a specific
formula to determine how much they will lend. (Photo: Getty Images)
4. Know how much you
a broad sense, mortgage lenders use the 28/36 rule. That means your total
mortgage payment, including taxes and insurance, shouldn't exceed 28% of your
pre-tax income, while your total debt shouldn't exceed 36%. That's not a hard
and fast number, but it's the basic guideline most lenders use.
Your lender will want
to see two years of past taxes in most cases. (Photo: Getty Images)
5. Have your
paperwork in order
mortgage lenders will want to see the two most recent pay stubs, two years of
taxes, and at least 90 days of bank account statements for anyone on the
mortgage. In many cases, they will also want to see documentation of any
investments and retirement accounts.
this package together before you start applying, and update it as you go. You
should also remember that your lender may ask for bank statements and pay stubs
after an approval has been granted but before the loan has closed.
Your bank or lender
will want to know where all of your money comes from. Images (Photo: Getty
6. Be ready to defend
lender will almost certainly ask about any income that shows in your bank account
that your pay stubs don't explain. If you, for example, got a large gift from a
family member to help with a down payment, you may have to fill out paperwork,
and get your relative to sign, documenting that it's not a loan.
also have to explain everything from a work bonus to a scratch-card win if the
amount looks at all suspicious. Basically, your lender wants to make sure the
financial picture you present reflects reality.
Using real estate to
secure your financial future isn't for the faint of heart, but if done right,
it has a lot to offer. USA TODAY
Daniel B. Kline – To view the original article click here