Bob Hope once said, “A bank is a place that will lend you money if you can prove that you don’t need it.” At TwinCity Lending, we understand that you are going to need “it” to get the home of your dreams. That money usually comes in the form of a mortgage, and we are here to get you that stamp of approval in no time at all.
Contact us for all your mortgage and refinance needs. In the meantime, follow the 10 steps below to boost your approval odds when it’s time to apply for a home loan.
1. Check your credit history report and credit score.
Checking your credit score is first on the list because if there is a problem, it may not be a quick fix. Pull a current credit history report and correct any mistakes you find.
Many banks and credit cards are including a free credit score report with every statement. Some of their websites and apps have tools that will help you try out different scenarios to see how you can improve your score. However, check out the remaining steps before you get too carried away.
2. Don’t open or close any new credit accounts.
The first thing you might be tempted to do is close old credit accounts to clean things up a bit. Closing credit card accounts is a bad move since it may raise your debt-to-credit ratio. If your next thought is, “Well then, maybe I should open a few more accounts to lower that ratio” – stop.
Opening new credit accounts can adversely affect your credit score. Hard inquiries on your credit report counteract improvements you’re trying to make. Opening accounts will do more damage to your approval odds in the short term. So hold off on that new car.
3. Stay at your job.
Lenders usually require proof of income for two years and may not consider your income stable if you haven’t been in one position long enough.
Even if you stay within a company, don’t switch to a job that pays by commission, or lowers your salary. It doesn’t look good in the short term for a loan application. Lenders want to know that you are going to have the income moving forward to pay back the loan.
4. Don’t move money around.
Lenders will require at least two months of bank statements to verify all funds being used for the loan.
If you are moving money around for convenience, such as from savings to checking to pay bills, this can also be seen as a red flag. It may appear that you are depleting your down payment funds, and it creates a messy paper trail to document.
5. Save for your down payment.
When you know how much cash you will be able to produce at closing, then your mortgage broker can find the right loan for you. There are programs to help with down payments for qualified borrowers. But the more you can put down, the more options you will have in obtaining a mortgage. Having a sizable down payment will go a long way to getting that stamp of approval.
6. Check your budget.
Just because a lender approves you for a certain amount, doesn’t mean that is what you genuinely can afford. When you consider a monthly mortgage payment, you need to take into account:
- The amount of the loan
- Private mortgage insurance (PMI), which is required until you have at least 20% equity
- Homeowner’s insurance
- Property taxes
When calculating what you can afford, don’t overlook the last two items which often roll into escrow accounts attached to the mortgage. Use one of the many calculators on our site to help you determine what’s feasible for you.
7. Know the different types of loans.
The home loan market has a wide variety of options. Your TwinCity expert can help you navigate any of the following:
- Conventional
- Fannie Mae
- 80/10/10 Piggy Back
- HomeReadyTM
- Freddie Mac Home Possible
- Conventional 97
- FHA
- VA
- USDA
Don’t worry.You don’t need to become a mortgage expert. It is our job at TwinCity Lending to help you with your questions and find the best solution for you.
8. Look for down payment assistance.
If the numbers still aren’t working completely in your favor, you’re not alone. According to a US News article, “61.7 percent of millennials who want to buy a home said they can’t afford a down payment.” Millennial or not, if you need help, there are options available that don’t include asking Mom and Dad.
Many of the loan types listed above can be a starting point for down payment assistance loans.
State housing finance agencies and local housing authorities can be sources for down payment grants. These grants are not just for low-income borrowers. They are for qualified wage earners that don’t have enough saved yet.
9. Get pre-approved.
In today’s housing market, you almost can’t make an offer on a home without completing this step. And pre-approval is a bit different from pre-qualification.
A letter of pre-qualification from a lender indicates that you have provided some basic information about your finances and have discussed possible loan options. It shows that the bank believes you can qualify for a loan up to a particular value, based on that information.
Getting pre-approved, however, requires a more in-depth review of your income, assets, debts, and credit history. And all of that information has supporting documentation from you.
This type of review carries more weight with sellers and indicates you are more serious. All the information is re-verified at closing.
Pro Tip: Continue with Steps 1-5 above up until the day of closing!
10. Have your paperwork ready.
Gather all the documentation you need before applying. Your mortgage broker can give you a precise list, but in general you need the following:
- Pay stubs going back 30 days
- W-2s going back two years
- 1099 forms if you are self-employed
- Proof of any bonus income
- Documentation of any other income including dividends, stock earnings, spousal or child support, social security, or disability awards
- Pension statements
- Documentation of assets such as stocks, bonds, and life insurance
- Bank statements going back 60 days
- Tax returns going back two years
- Proof of homeowner’s insurance
Having all this paperwork on hand will make you approval odds that much better.
Can you see that stamp of approval yet?
Follow these steps, and you will be on your way to a home loan approval. What are you waiting for? Come see us at TwinCity Lending, and start looking for that dream home right now.