Barry Kunselman | 303.887.0588 | Contact Barry
Whether you’re ready to buy your first home or forever home, securing a mortgage is a major part of the process. It can also be a stressful experience. Here we provide a few pointers on avoiding common pitfalls and taking the steps needed to ensure a more seamless closing.
1. CHECK AND REPAIR YOUR OWN CREDIT
What FICO® Score Do You Need to Qualify for a Mortgage? Bottom line, the better your credit score the better your mortgage options will be. Pull your free annual report from Equifax, Experian, and TransUnion. You can also use a free app like Credit Karma. Follow-up on and fix anything suspicious or inconsistent. See what debts you can pay off quickly, then make a plan to keep revolving credit balances low and reduce overall debt. It may also be smart to tuck away those credit cards and create a workable budget.
2. LOWER YOUR DEBT-TO-INCOME RATIO
Lenders will pay close attention to your debt-to-income ratio (DTI) —monthly debt obligations divided by gross income. This includes credit card, student/personal loan or child support payments, but not things like entertainment or groceries. Typically, lenders want a mortgage and home costs to be no more than 28% of your gross income. Once everything is calculated, your DTI should be no more than 36%. With fewer debt payments, you’ll have greater buying power.
3. GET PRE-APPROVED BY YOUR LENDER
Pre-qualification only requires you to provide information about your finances and credit score. In return, you’ll get a general estimate of how much you can likely borrow. Pre-approval is more in-depth. A lender will look further at your finances and require documentation regarding your credit, income, and debts. For your efforts, you’ll know exactly how much your loan amount will be – even get it in writing. You can then search for homes in the appropriate price range.
NEED A LENDER RECOMMENDATION FOR YOUR HOME LOAN?
Many buyers are purchasing homes with down payments as little as 3%. You may already qualify for a loan, even if you don’t have perfect credit. Contact (303) 887-0588 today and I will get you one of our trusted lenders that best fits your needs.
4. LOOK BEYOND THE HOME’S PRICE TAG
Keep in mind that the price of a home doesn’t exactly reflect its true cost. If you’re putting less than 20% down, you’ll likely be required to pay for Private Mortgage Insurance (PMI). Property taxes and homeowners insurance may also be rolled into your monthly mortgage payment. And don’t forget HOA dues or condo fees, plus closing costs that buyers are responsible for such as earnest money, an appraisal, and the home inspection. This is a significant purchase.
5. HOUSE HUNT WITH A REAL ESTATE AGENT
While your house hunt might begin online, a real estate agent is an invaluable resource when it comes to choosing the right Denver home and neighborhood for your needs and lifestyle. They can also introduce you to areas where your pre-approved dollars will go further and neighborhoods that have huge appreciation potential. An agent will often know if a community or condo is due for a review of its reserve fund which can lead to higher HOA fees and stress on your budget.
6. GATHER YOUR FINANCIAL DOCUMENTATION
Closing on a home loan can be overwhelming. From providing two years of W-2s or 1099s to putting personal information on the table—like proof of child support payments—no rock is left unturned by your lender’s underwriter. So, gather all documentation as early as possible. Have records of your bank accounts, income tax returns, car loans, credit cards, any other debts, plus assets such as investments, other properties, and your 401k.
7. DON’TS AFTER APPLYING FOR A MORTGAGE
- Don’t Change Jobs or the Way You Are Paid at Your Job. Your loan officer must be able to track the source and amount of your annual income. If possible, you’ll want to avoid changing from salary to commission or becoming self-employed during this time as well.
- Don’t Deposit Cash into Your Bank Accounts. Lenders need to source your money, and cash is not really traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
- Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher debt to income ratios…higher ratios make for riskier loans…and sometimes qualified borrowers no longer qualify.
- Don’t Co-Sign Other Loans for Anyone. When you co-sign, you are obligated. As we mentioned, with that obligation comes higher ratios as well. Even if you swear you will not be the one making the payments, your lender will have to count the payments against you.
- Don’t Change Bank Accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is consistency among your accounts. Before you even transfer any money, talk to your loan officer.
- Don’t Apply for New Credit. It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO® score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
- Don’t Close Any Credit Accounts. Many clients erroneously believe that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants in your score.
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