Purchasing a home often becomes the biggest financial experience in one’s life. Follow these tips on how to improve your chances for home loan approval.
Getting the financing to buy your home may create challenges. Take the following steps for a smoother loan process and mortgage approval.
Check Your Credit Score
Home loan approval depends on your credit report which includes a credit score. The first thing lenders look at is your credit score (a number indicating the risk of providing you a loan). Low credit scores tell lenders the applicant is too risky to get a loan. Bankruptcy, late payments, too many debts, low income relating to debts, and other facts show the creditworthiness of the loan applicant.
Even if your loan gets approved a low credit score allows lenders to charge higher interest rates to protect the risk.
Checking your credit score early on gives you time to find incorrect information. Get all errors corrected right away to raise your credit score. Disputing errors in your credit report takes time because documents need to correct mistakes to change the errors.
Catching credit report errors later after your purchase goes into the closing (escrow) process may not give you time to raise your credit score for a lower mortgage rate.
Also, do not open any more lines of credit until after your home purchase closes and your new mortgage begins. New lines of credit cause lenders to scrutinize them which may lower your credit score.
Want to learn how to get your Free credit report and how to understand your credit scores? Read our recent blog post. Here
Get Pre-Approval Early
Before making an offer on your next home (or first one) get a pre-approval letter from a lender.
Don’t wait until after you make an offer. That’s because pre-approval helps you move faster towards buying the perfect home.
Real estate agents often ask if you possess a lender’s pre-approved letter. Getting this letter shows agents and sellers you’re serious and ready to buy immediately.
In 2017, the Zillow Group published a Consumer Housing Trends Report showing most buyers using an agent obtained a lender’s pre-approval letter. The letter was either a prerequisite or highly recommended by the agent.
Getting a Full Underwritten Pre-Approval
A problem with the pre-approval letter it only shows a willingness by the lender to provide a mortgage loan if you meet certain conditions like steady historical income. It only gives reassurances of the buyer’s ability to qualify for a loan rather than a guarantee.
Take the extra step from a lender’s pre-approval letter. Ask the lender for a full underwritten pre-approval letter.
The reason for this demonstrated by the Zillow Report that 92% of home buyer’s got pre-approved mortgages.
If every buyer now days presents a pre-approved letter from a lender when making an offer you must stick out from the crowd. That’s why a fully underwritten pre-approval helps you more than a mere letter. It guarantees you a mortgage at a maximum price.
The process for getting an underwritten pre-approval involves the lender verifying more mortgage application information. This includes your assets, income, and debts. The lender sends the information to their underwriting department for approval.
This also speeds up the process for getting full loan approval after the seller accepts your offer to purchase a home. As long as you’re financial condition remains the same as when you got underwriting approval.
All that underwriting needs to do is to verify the home meets other closing conditions for loan approval.
Getting all this work done up front allows a faster closing. That’s good for you and your seller.
Don’t get put off by the extra work to get underwriting pre-approval. The same work occurs anyway after acceptance of your offer. You speed up the entire mortgage application process before making an offer on your next home.
When real estate agents and sellers see you became underwriting pre-approved your offer stands out above the rest with a mere pre-approved letter.
Show Financial Stability
Lenders most of all want you to repay your loan and never default. Showing financial stability goes a long way for qualifying.
Limit your spending so no red flags pop up when lenders review your financial history. Don’t make any recent big purchases. Never miss a payment on your car loans, credit cards, student loans, and other revolving debts.
Lenders want to see employment consistency. Never change jobs during your mortgage application review process. You need to show consistency with your ability to pay your debts and repay your loan.
Putting More Money Down
Many buyers assume coming up with the minimum down payment satisfies all loan requirements. But, depending on what you can afford making a larger down payment (like 20% or more) increases your chance for loan approval.
A larger down payment also shows lenders how serious you are about buying. Also, it shows you’re trustworthy. In addition, a large down payment reduces the loan-to-value-ratio which enhances your opportunity for getting loan approval.
Sellers also like larger down payments making your offer more attractive. A seller confident that you will secure necessary financing increases your odds over competing buyers.
Move Fast After the Seller Accepts Your Offer
Speeding up the loan process (like getting an underwriter pre-approval) and getting the appraisal and home inspection competed sooner makes the closing faster.
Ask your lender to order an appraisal as soon as the seller accepts your offer. A faster appraisal gives the seller more time to fix problems found during the inspection. It also gives you more time to negotiate the sales price if the appraisal shows it too high.
For example, an appraisal for less than the sales price gives you and the seller time to renegotiate the sales price. An insufficient time before the closing often results in a failed purchase.
The same goes for your home inspection. As soon as the seller accepts your offer schedule a quick home inspection. If the inspector finds problems enough time exists for the seller to fix them before the closing. Some problems may require a specialist to inspect and find a solution with enough time before the closing.
Learn all about home inspections by reading our past post. Here
Now that you learned how to improve your chances for home loan approval follow these steps:
- Check your credit score;
- Get Pre-Approval early;
- Get a full Underwritten Pre-Approval;
- Show financial stability;
- Put more money down; and
- Move fast after the seller accepts your offer.
If you want to learn more about the types of home mortgages available from the government offering lower down payments and interest rates read our recent post. Here
Contact Us for help with finding your new home. Our Greater San Diego Realtors are available to answer your questions about mortgages, negotiating with sellers, home inspections, appraisals, and finding the perfect home for you and your family.
Steven Rich, MBA – Guest Blogger
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