Understanding the different ways to impress a mortgage lender can increase your chances of having your home loan application approved. Getting a home loan has become harder since 2008. Many lenders have a strict underwriting process and they'll deny your application if you don't meet their requirements. Here are seven ways to impress a mortgage lender and qualify for the home of your dreams.
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1. Bring Cash to the Table
Being prepared and knowing what the lender requires is one of the top ways to impress a mortgage lender. Don't apply for a home loan if you don't have cash for a down payment. Conventional loans require 5% down, but you can get an FHA mortgage with only 3.5% down. If you really want to impress a lender, bring 20% to the table.
2. Have a Backup Cash Reserve
Depending on your lender, having money for a down payment isn't enough to qualify for a home loan. Some lenders ask to see bank statements and require applicants to have a two or three-month cash reserve. This financial cushion is helpful in the event of a financial emergency, such as a job loss. The more cash you have stashed away, the easier it is to qualify for a home.
Additionally, demonstrating sound financial habits by maintaining a buffer of readily accessible funds impresses lenders as it indicates you're prepared for the uncertainties of homeownership. Unexpected expenses—such as repairs or increases in property taxes—won't undermine your ability to make mortgage payments. Therefore, meticulously planning for a robust emergency fund not only gives you peace of mind but also solidifies your standing in the eyes of potential lenders. It's a smart strategy that can differentiate you from other applicants and potentially secure more favorable loan terms.
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3. Build Your Credit Score
You can qualify for a mortgage loan with a score as low as 620. But if you're looking to impress your mortgage lender, take steps to build an A+ credit score. A credit score 740 or higher qualifies you for the best interest rate. Pay your bills on time and reduce your credit inquiries.
To boost your credit score, consider paying more than just the minimum on your credit cards each month. This not only showcases financial stability to lenders but also helps in reducing your debt-to-income ratio—a key factor lenders evaluate. Additionally, steer clear of opening new lines of credit before applying for a mortgage as this can temporarily dip your score. Keeping older accounts open can also work in your favor, as it shows a longer history of creditworthiness. Remember, building a solid credit score takes time; patience and consistency are your allies in this journey.
4. Pay off Your Debts
Mortgage lenders frequently deal with people who have tons of credit card debt. A high debt to income ratio can stop a mortgage approval. To qualify for a mortgage, take steps to pay down your balances. Pay more than your minimum on your credit cards, and don't take out new debts.
5. Have Documentation Ready
A mortgage lender will not approve your application without first reviewing your income history. Lenders require at least two years of income statements. This can include tax returns, 1099s or W-2 forms. Applying for a mortgage without these documentations can slow the process and annoy your home loan lender.
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6. Be Available
The home loan approval process can take several days, and your mortgage lender may call you with additional questions. Make sure you're accessible and go the extra mile to provide your lender with the necessary information. Additional information may include copies of bank statements, information on investments and assets, or credit information.
7. Understand the Mortgage Process
Before applying for a home loan, go online and educate yourself on the process. Your mortgage lender may use a lot of finance language, and while you can always ask questions for clarification, the process will move faster if you have a general understanding of the process. Not to say you need to become an expert, but you can educate yourself on different aspects, such as the appraisal, the home inspection, the title search and so forth.
Applying for a home loan is likely the biggest financial move you'll ever make. This is a huge investment and an excellent way to jump start your net worth. What steps did you take to impress your lender?
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