A little over a decade ago getting approved for a mortgage didn’t require much. In some cases, all you needed was a pulse. Times have changed, and today’s families need to work a little harder at securing a home loan.
Thankfully, there are a handful of things you can do ‘pre-application’ to ensure an easier approval.
Compile Some Paperwork
Every credible lender out there will require proof of income, assets, and credit. You’ll need to show your monthly income by providing at least two pay stubs from your employer along with the last two years W2s. If you’re self-employed, get your last two years of tax returns ready to be examined. Of course, you’ll also need the Social Security Number for anyone who will be on the loan. The lender will use that to pull your credit report.
Know Your Credit
Your credit is the key to getting a home loan. Before filling out an application, pull your own credit report. Check for errors, duplicate accounts, late payments, and more. You might also consider using a free service such as SavvyMoney. This will allow you to see your credit score along with an overview of your current credit report. You are also entitled to one free copy of your credit report from each of the reporting agencies per year at annualcreditreport.com.
If your FICO credit score is above 700, you’ll have an easier time being approved. Keep in mind, the lower your score, the higher your interest rate. That means, if you have a low credit score, you’ll pay more for your mortgage – sometimes thousands more over the life of the loan. Good credit really is worth all the work.
Know Your Money
Do you know where all of your money goes each month? If so, you’re miles ahead of most American families. Before applying for a home loan, start a list that includes your household monthly income, the total of all of your debt payments including auto loans, credit card minimum payments, and student loans. You will also need your total available cash, including your liquid savings.
According to Dave Wasylenko, Mortgage Loan Specialist at St. Helens Community Credit Union, you’ll want to calculate your debt-to-income ratio before applying. To calculate yours, add all of your monthly debt payments together and divide that number by your net monthly income. As long as your ratio is 10% or less, you’ll have enough room in your monthly budget for a mortgage payment.
However, make sure that your total monthly debt and your mortgage payment together do not exceed 35% of your total income. Going over that threshold could put you and your family in danger of foreclosure – and nobody wants that. Additionally, keep in mind that your house payment isn’t the only expense of home ownership. You could have homeowner dues, utilities, repairs, exterminator fees, property taxes, as well as insurance.
Don’t Job Hop
There isn’t a lot to say except, the longer you work somewhere, the better you will look to a potential lender. If you’ve had more than one job in the last two years, be prepared to have a really good explanation.
Save for Your Down Payment
Most lenders will require you put 5 to 10 percent down to secure your home loan. You’ll also need cash for inspections and other fees. Those can add up to $500 or more. In the end, you might need $10- to $20-thousand dollars for your down payment and other closing costs.
Find the Right Lender
Before you fill out any applications, be sure to do your homework. Does your credit union or other financial institution offer home loans? If so, are their rates competitive? What is their promised turnaround for new home loans? Are there any credible complaints or lawsuits aimed at the lender in regard to home loans? And finally, do you have a good relationship with the lender? Answering these questions honestly will help you find the lender that’s right for you.
Needs help finding the right loan for your family? Try St. Helens Community Credit Union. They’ve been helping members finance homes and dreams for decades. They’re ready to help you too. Membership and other information are available at shcu.org.