Buying a first
home is exciting, wonderful and scary. Your home will be an area where you
raise your family, build life-long friendships and it will likely become a
vital part of your financial stability. Waiting for a mortgage underwriter to
approve your loan can take several anxiety filled weeks.
Here are some tips to help
you succeed in getting your loan approved quickly.
1.
Save for the down payment. You
cannot borrow the down payment for most mortgage loans. For some, you cannot
even pick up a gift. Parents often offer to lend their adult children the money
for a down payment. That can be problematic. If your parents are really willing
to contribute to, set up back in with them for a year while you save the rent
money for a down payment. As a general rule of thumb, you’ll need about 7% of
the purchase price of the home to qualify for a typical mortgage, including
some closing costs and post-closing reserves. Get specifics from your loan
officer.
2.
Work on your credit. Before you
even give some thought about purchasing a home, you should be to establish a
good credit record. You don’t just have to borrow a lot of money to prove you
have excellent credit. You’ve likely been paying rent and utility bills on
time. That can be documented. (If you haven’t been paying on time start today!)
Pay everyone for everything on time. If you can’t afford it, don’t borrow the
money to buy it.
3.
Sell your car. If do not leave
a car with a loan, consider selling it to reduce your outstanding debt and, if
possible, purchase one for cash. If your car is nearly paid off, that is, by
making the regular payments it will be paid off in less than a year from the
time you will submit your loan application, you don’t need to be done anything
special. The underwriter should ignore the loan. Just commits now to keep
driving the car long after it is given off. (My wife and I sold our cars and
bought an old clunker that we drove for 18 months in order to qualify for our
mortgage.)
4.
Pay off consumer debt. Decrease
all of the debt you have as much as possible. It may be hard to do this while
you’re saving for a down payment, but the debt will work powerfully against you
both before and after you purchase your home. Get rid of it.
5.
Consolidate and extend the
remaining debt. This step has no impact on the preceding steps. Get rid of as
much debt as possible. Once you’ve reached your limit and your debt is
manageable, get an opportunity to combine and extend any remaining debt to
minimize the payment. You should complete this at least 90 days before you start
looking for a home. Credit applications near the time of your mortgage
application are a huge red flag.
6.
Before you figure out a home,
get “pre-qualified.” Different lenders have different names for and offer
varying assistance toward helping you figure out how much money you cando not
have the capacity to borrow, but regardless of the form it takes. This free
consultation should give you a good gauge of what you can afford. Be assured
that your lender reviews your credit report at this stage so that you both know
before you start writing offers if there are problems there that could prevent
you from getting registered for a mortgage.
7.
Provide, don’t hide
information. It is almost impossible to conceal financial information from the
underwriters. Your entire life history is just a mouse click away. If there has
become a fiscal problem in the past seven years, disclose it early and provide
a complete explanation of what happened and why it will never repeat again.
Underwriters—not the loan officer with whom you’ll work directly—will make the
loan decision and they will ask for all kinds of information. Even the loan
officer may not understand why the information is requested. Provide it quickly
if you want your loan approved.
By following these basic steps you’ll have prepared yourself well to
purchase a home where you and your family can build a happy life together.
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