Get Your Mortgage Approved.
Speaking with a lender before starting the home buying process can save you lots of grief later.
Review your credit report to uncover any unknown issues, then determine if you need to strengthen your score first.
Pay all of your bills on time and, if possible, in full every month. Learn which debts to pay down first to better your score quickly. For example, addressing delinquent collection accounts first usually has a more immediate impact on your credit score than paying down credit cards. After you pay off delinquent accounts, make sure you have some good credit to show. If you don’t have an open credit card or loan, establish a new line of credit to build a positive payment history for your mortgage preapproval.
DON’T MOVE MONEY
Lenders like to see that you have 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. Keep in mind you’ll need two months’ worth of bank statements to prove you’ve had your contingency funds for the required time.
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SHOW CONSISTENT INCOME
Show consistent income over time. Your mortgage lender will want two years’ worth of tax returns and bank statements to show consistent income deposits. This can mess up a lot of borrowers. If you earn most of your income from hourly wages, commissions or bonuses, or if you’re self-employed, you’ll need to provide two years of income documentation to your lender. Expect to show your bank statements, pay stubs, tax returns and other financial paperwork.
PROOF OF ASSETS
You’ll need to show bank statements and other account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves. An FHA loan requires a down payment of as low as 3.5% of the cost of the home, while conventional home loans require 5% to 20%, depending on the loan program. If you receive money from a relative to assist with the down, you’ll need a gift letter to prove that this is not a loan.
Most lenders today reserve the lowest interest rates for customers with a credit score of 740 or above. Below that, borrowers may have to pay a little more in interest. FHA loan guidelines have tightened so that borrowers with a credit score below 580 are required to make a larger down payment. Many lenders require a credit score of 620 or above to approve an FHA loan. Lenders will often work with borrowers with a low credit scores and suggest ways they can improve their score.
In addition to wanting to see your pay stubs, a lender is also likely to call your employer to verify that you’re still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer as well. Lenders today want to make sure they are loaning only to borrowers with stable employment that can be verified. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income.
Your lender will need to copy your driver’s license, your Social Security number and get your signature allowing them to pull a credit report. Be prepared to provide this information to your lender upon your first meeting. Provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be.
Contact the credit reporting agencies immediately if you see any incorrect or false information on your reports. Mortgage companies generally want loans to close on time, so they’ll pay credit agencies to update your credit report quickly with a rapid rescoring service. Be aware that the Credit Score you receive from online sources may be quite different from how a lender calculates your score.
Don’t buy cars or other big ticket items when applying for a mortgage!