Becoming a homeowner means relying on the generosity of lenders. Every consumer wants to believe that he is the ideal candidate for a mortgage and that he is entitled to own his own home. But there are certain things that the mortgage lender will look for in your financial profile that will determine how whether or not you will qualify for a home loan. Before you start filling out applications and looking for a mortgage, there are a few things you need to take care of to improve your chances of getting the mortgage you want.
If you just started a new job and have less that six months with your current company, then you may want to wait before applying for a mortgage. The lender will look at your employment history to determine your ability to maintain employment and repay your obligations.
The lender will look at the job history on your credit report and it will also check in with your current employer to see how stable your job really is. The lender is more likely to lend money to someone that has been at his job for several years and gets a glowing referral from his employer than someone who has only been on the job for a few months with no real opinion from the employer.
Your credit history and your credit score play a huge role in whether you get the mortgage and how much interest you pay.
Your credit score will be one of the primary indicators that the lender will use in determining what your interest rate will be and if you will need a co-signer to get your mortgage. Credit scores of 700 and above usually result in the best interest rates. The higher your credit score, the lower your interest rate. A lower interest rate means that your overall loan costs are lower and your monthly payment is lower as well.
Your credit history is a lender’s snapshot of your reliability and the patterns you have created as far as paying back loans. If your credit history is filled with late payments and defaulted accounts then that is going to affect whether or not the lender gives you a mortgage.
A mortgage is one of those processes where your entire credit report is on display. When you sign up for a credit card, the only criteria that is often used is your credit score. But with a mortgage, the lender is trying to understand your patterns and whether or not you are a reliable bill payer.
One of the first things you should do before applying for a mortgage is to order a free credit report from each of the three major credit reporting agencies; Trans Union, Equifax and Experian. Avoid using those free credit report services because they will often try and lock you into a monthly program that will cost you. All you need to do is contact the credit reporting bureaus directly and ask for your free report. It is a federal law that each agency needs to provide you with a report once every 12 months. Take advantage of the law and get your free reports.
Look over everything on your credit reports and make sure all of the information is correct from your name to your credit accounts. If you see any issues, then use the dispute process as outlined on the report to submit the correct information. Wait at least 30 days and then order your reports again (you’ll have to pay for it the second time) and make sure each change has been made. The credit companies will send you letters confirming that the changes have been made or explaining why the changes were not made.
Many young couples get a huge cash gift from Aunt Emma at their wedding and then run out and try to use that gift as a down payment on a mortgage. Using a gift as a mortgage down payment used to be acceptable so long as the gift sat in your bank account for a few months. But with the housing collapse of 2008, the rules on using a gift as a down payment have changed significantly. The lenders and the federal government want to see less gift money and more of your own money as your down payment.
If your down payment is your own money, then be prepared to prove it. Track the progress of saving for your down payment by keeping deposit receipts and bank statements that give a paper trail to the creation of your down payment. It sounds a little over the top, right? With lenders watching even more closely than ever for fraud, this is the reality of getting a mortgage. Even when it is your own money, you have to prove it.
Can you still use a gift for a mortgage down payment? Yes you can, but it is complicated. When someone gives you a gift to be used as a down payment, that gift needs to come complete with a notarized letter stating that it is a gift and not a loan, when the gift was given and who gave the gift. The letter should also show the address of the property you will be buying and the relationship of the gift giver to you.
When you deposit the gift into your bank account, make sure the gift is its own deposit with its own bank receipt. The lender does not want you to try and hide the deposit in your account. It all sounds very covert, but it is just the process that lenders use to protect themselves from any kind of fraud. First-time home buyers that are trying to get an FHA-backed mortgage will have to go through the same kind of process.
Getting a mortgage requires some preliminary work on your part. It is best to get all of the preliminary work out of the way before you apply so that you can increase your chances of getting approved. It can be discouraging to put the process of buying a house in motion only to find out that you cannot get a mortgage.