The biggest challenge most people face when planning to buy a home is how they're going to finance it. And it's easy to see why. Houses are expensive. Buying a home is often considered the biggest financial purchase an individual will make in their life. Home buying is far from an everyday event for most Americans, as it typically only occurs once, maybe twice in a lifetime. This explains why so few home buyers are fully prepared for the mortgage process.
Nevertheless, if you have been finding it very hard to get a mortgage, there are certain things you can do to make the whole mortgage process easier for you. With proper preparation, your mortgage shopping will become much easier!
1. Prepare and Start Early
Mortgage lender's often consider ‘time’ to be one of the most important factors when determining how if you are for a mortgage. Paying off your debt and previous loans will help to increase your creditworthiness. Lenders also consider debt-to-income ratio as one of the main criteria for approving loans. Your debt-to-income ratio is how much debt you have in comparison with the income you make. According to the U.S. Consumer Financial Protection Bureau, lenders don’t want to see a ratio that is over 43%, but a ratio lower than 43% is still better. Your ratio will improve if you can settle previous term loans or pay off a credit card. This can increase the amount you can borrow as well as increase your chances of getting your loan application approved.
2. Know Your Credit Score
Your chances of getting an approval can be affected by your credit score. Credit scores go from 300 – 850, and they are determined by how you pay bills and how you use credit. Three major credit bureaus exist in the United States. They are TransUnion, Experian and Equifax. Each bureau makes use of different criteria, making your credit scores to be slightly different from each other. The following are some of the common criteria used in determining a credit score.
- Payment history—35%
- Amounts owed—30%
- Length of credit history—15%
- Credit mix—10%
- New credit—10%
Although there are mortgage programs that are designed for borrowers with lower credit scores such as FHA loans, borrowers should consider handling any credit issues before proceeding with the mortgage process.
3. Get Your Credit Fixed
You can fix some parts of your credit before submitting your mortgage application. The most important part that should be fixed is the amounts owed. When all your balances are paid off, your credit score will increase. Additionally, don’t open new accounts or do anything that could trigger a credit check for the period of the mortgage application process. If you open a new account, it will negatively affect you.
4. Know How Much You Can Get
Knowing what you can afford will help speed up the mortgage process. The common rule used by mortgage lenders is 28/36. This means your total mortgage payment (insurance and taxes included) shouldn’t be more than 28 percent of your pre-tax income, and your total debt shouldn’t be more than 36 percent. This is just the basic guidelines used by most mortgage lenders. You can still get approved even if you don't fall into this category.
5. Ensure all Required Paperwork or Documentation is Ready
Most lenders will require valid documentation of two years worth of taxes, two most recent pay stubs and a minimum of 90 days bank account statements. Typically, lender will also want to take a look at documents in respect of retirement accounts and investments.
Before you start the mortgage application process, ensure that all these documents are ready and keep updating them. It's common for lenders to request pay stubs and bank account statements after an approval and even prior to closing the loan.
6. Be Prepared to Explain Your Finances to Your Lender
Almost without fail, details will arise that will cause your mortgage lender to ask about the money in your bank account, especially if it contradicts your pay stubs. For instance, if a friend gifted you with a substantial amount of money to assist with a down payment, you may be required to complete paperwork that will be signed by the friend to confirm that the gift is not a loan in disguise. You will also have to defend any unconventional form of income that may look suspicious. This is all to make sure that your financial capability is genuine before closing the home loan.
7. Contact Jet Direct Mortgage!
At Jet Direct Mortgage, our mission is to set a high standard in the mortgage industry. We are committed to quality customer service - putting the people we serve first. Our goal is to carefully guide you through the home loan process, so that you can confidently select the best mortgage for you and your family from the many mortgage options that are available today. After you select the loan that is best for you, we will work continuously on your behalf to help you achieve your dream of home ownership. We can help put you into the home of your dreams.