Lenders look at more than just your credit rating. They want to know that you have a steady income and are responsible with your money. As you consider buying a home, take some time to evaluate your financial situation before shopping lenders. Here are just a few key tips and tricks at ensuring you’re in the best position for mortgage approval:
- Stay at your present job. The bank will want to see, at minimum, your last two tax returns. If you want to buy a home this year, it’s not the time to start over in a new industry. If you are just getting started in the professional world, you may need to work a while longer in order to show a history of steady income.
- Put off buying a new car. Be careful about buying big-ticket items like a new car or boat or on credit until after you have closed on your home.
- Pay down credit debt. If you are carrying a balance on credit cards, work hard to pay those down or off. Try not to use credit cards if you can’t pay the balance off monthly.
- Pay your bills on time. Incurring late payments will reflect poorly on your credit report, so keep track of deadlines or set up automatic payments before they are due.
- Save up cash for a down payment. You have a better chance of being approved for a lower amount, so try to save up for a down payment to reduce the loan amount.
- Don’t forget the closing costs. In addition to a down payment, lenders will also want to see that you have enough to cover potential closing costs, which in Ohio is an average 2-3% of what you pay for the home. For example, if you buy a home at $250,000, your closing costs could range from $5,000 to $7,500.
- Say no to cosigning for others. Now is not the time to cosign on any loans with family members or friends.
- Throw those credit card offers away. Each time you apply for credit, the provider will pull your credit history, which affects your score.
If you’ve applied for a mortgage and didn’t qualify, make certain to clarify lender feedback. A rejection could be around something that is very easily resolved, like an inaccurate note on your credit report. And remember, not all lenders work the same; a savings and loan bank may consider lower credit scores and smaller down payments than a commercial bank. It’s important to shop around and find a lender that appreciates your unique situation and can coach you through the steps you may need to take in order to qualify.
I work with several lenders serving the Columbus area, each with their own unique loan programs and qualifying credit standards. For a list of recommended lending vendors, contact me and ask for my Home Buyer Guide.