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If you’re in the market to buy a home, it’s likely that you will need some financial assistance to do so. Traversing the mortgage industry world can be a bit complicated for those who’ve never gone through the process of buying a home. Luckily, a professional and seasoned loan officer can help you guide the way and find a loan program that best suits your needs. However, there are a few items that your loan office will want you to be prepared for ahead of time. Here are some tidbits of information to get you in the know.
Credit is Key
The most important and relevant factor to being approved for a mortgage loan is your credit rating, so you should be aware of every item listed on each of your credit reports. There are three credit reporting agencies – Transunion, Experian, and Equifax, all of which assess your credit history and give you a score based on those results. It’s important to request all three reports, review them, and advocate for any errors to be removed. For example, your name may be Jane Michelle Doe, but your credit report may show delinquencies in the name of Jane M. Doe with a different address. This is not your delinquency, but because of the similarity of the name, it has been erroneously added to your report, lowering your score. This is an item that you can request to have removed. The higher and cleaner your credit, the better loan and rate you’ll be able to get, so take the time to make sure it is accurate.
Lenders look for three things when deciding whether or not to extend you a loan – steady income, a good credit rating, and a down payment. Having a jumpy employment history can be as harmful as a sketchy credit report, so you want your employment verification to show that you have been with your current employer for at least a year and that your position is direct. This is not to say that you can’t get a loan if you are self-employed or have recently started a new job, but your options will be limited as compared to those loan programs offered to direct employees. If you’re on the fence about staying at your job, make sure to hang in there until your loan has been approved and funded. There are times when an additional employment verification can be added as a funding requirement and if they discover you’re no longer working, the loan could be dead in the water.
Avoid Large Purchases
You’re jumping in with both feet to buy a house, so why not buy a brand new car to go along with it? Bad idea. Like our employment verification, your credit report may also be updated during the loan process and any new and additional revolving credit can seriously impact your debt to income ratio, which, in turn, can terminate your loan. It’s a good idea to avoid buying new items on credit altogether and continue paying your current debt on time.
While there are limited loan programs available that don’t require a down payment, they’re not available to everyone and going that route is typically ill advised. To receive the best rates for your mortgage, you’ll want to have a down payment of 20% and those funds need to be verified per the Good Funds Act. Verifying funds means that the lender needs to ensure that the money for your down payment and your closing costs can be sourced from reliable financial institutions such as a bank, credit union, or from your investments. Stating that your funds were in your piggy bank isn’t going to cut it.
Work with Your Loan Officer
The majority of loan officers are very good at their jobs. They’re meticulous and very knowledgeable about the requirements for each lender. Prior to submitting your loan for approval, they’ll ask you for your information, and may ask you to write letters of explanation or to request payoff statements for any outstanding debt that needs to be paid. They’ll gather all of the required documentation and submit it to the lender. What’s not typically understood is that the requirements of the lender are not set in stone but in fact can change on a whim, so if your loan officer comes back in need of additional information, be patient. They’re likely just as frustrated as you are.
The key to a successful relationship during a real estate transaction is communication. Shop around and find a loan officer that suits your needs while keeping in mind the expectations they may have as well. Happy house hunting!