Preparing to Make a Home Loan Application

Getting a Home Loan Application may seem like it’s out of reach, but it’s not that hard and there are ways you can improve your odds.

Home Loan ApplicationPut your best foot forward and put on your game face, You need to be as tantalizing as possible to lenders if you want to get the best mortgage deal. Here are 16 top tips on how to increase your chances of getting the deal you want.

Don’t expect every lender to be enthralled by you

Every lender has its own style of deciding whether you’re a candidate for the loan programs they offer. It’s much like a beauty pageant and lenders are judging you against their ideals. If you’re found to be a good fit for a lender’s criteria, you’ll probably be accepted quickly. If don’t meet their standards, you’ll most likely be rejected.

 Lender’s use a scorecard that is based on several factors, such as:

  • The size of loan you want to take out
  • How much you’ve saved as a deposit
  • Your employment status and income
  • Your credit rating
  • Your outgoings
  • Your existing debt

If you pass you’re likely to be approved, but nothing is guaranteed.

Check your credit score before they do

One way lenders investigate you, is by getting your credit report. This is done by searching your credit records to find out if you’ve a good repayment history. You need to prove to lenders that you’ve got the financial discipline required to pay back your mortgage.

Your credit file lists all of your accounts that were open for the past 6 years. They include your past credit cards, loans, overdrafts, mortgages and even mobile phone and utility payments.

Correct credit score errors immediately

If you discover errors on your credit report, you have a right to do something about it – get it corrected as soon as possible.

 

Register to vote

Even though you may have a perfect credit score without being a registered voter, it’s still nearly impossible to get a mortgage without being registered. Lenders use electoral roll data to do identity checks (this way they can ensure YOU are who you say you are, and YOU live where you say you live, also that you’re not laundering money).

Your credit file will say if you’re on the electoral roll or not, you can always check yourself at your local county court house.  Do this as soon as possible, most of the time you can be added quickly but during late summer and early Fall it can take longer to register.

Your ex partner’s score can wreck yours

If you’ve ever been financially linked to someone else by sharing a bank account, holding credit cards or applying for a loan together and now you’ve separated or divorced, then you need to DE-LINK yourself from them. Remember that all late payments or misdemeanors they’ve committed will have adverse effects on your credit rating. Write a letter to the credit agencies and request a notice of ‘disassociation’.

You could still be linked to old room-mates if you held joint accounts for utilities or rental payments.

Even if the person you’re linked to has a good history now, you’re still at risk if  they miss future payments.

Carefully manage your available credit

This is all about your available credit limits available on your credit cards and overdrafts. It’s the difference between your combined debit balances on your cards/ bank accounts and your combined credit limits/overdraft limit.

It’s vital that you strike a balance between not having too high of a credit limit — as lenders think you run the risk of racking up more debt by spending it all — and not getting too close to your limits, which may appear as if you’re at the edge of your finances.

According to Experian if you have debts, lenders prefer that they total less than half your available credit. So if you’ve a combined limit of $10,000, they suggest you use less than $5,000 of it.

If you are using a considerable proportion of your available credit, avoid lowering your limits so you’re suddenly close to the edge. Similarly, don’t increase the amount available credit unnecessarily — lenders may get nervous thinking  you could suddenly be far more indebted than you currently are.

Each lender views the amount of credit you should have differently, I recommend to stay below 50%. Of course, any time you have the ability to “PAY OFF” at debt… do it.

Close old, inactive accounts

If you’re not using an account, you should consider closing it. Anytime you have an inactive account, it increases your risk for fraud and it the account details may be incorrect & need updating.

However, when applying for a mortgage, longer, established credit relationships are more of a positive. In other words, if you have 2 revolving credit cards, one of them has been with you for years while the other was just recently opened, your older card will be the one you’ll want to keep it shows stability.

ALWAYS pay ALL your bills on time

This is a NO BRAINER—Just do it.

All missed & late payments count against you on your credit file.

Most defaults will count against you for at least a year, and they remain on your file for six years.  Even if you iss just one mobile phone payment, it could mean the difference between getting a mortgage or being declined.

By setting up a direct debit on all accounts it will ensure these payments are made on time.

Don’t apply for credit shortly before a mortgage

Avoid applying for credit in the three months prior to getting a mortgage – it may hinder your score or worse yet, lead to rejection. In order to absolutely safe, I recommend a 6 month gap.

Lenders search your credit file every time you apply for a loan, credit card, or even a mobile phone or utility contract. This search appears on your credit file, even if you didn’t take out the contract.

The more searches over a short time that appear on your credit file, the less likely you are to be granted credit.

Limit your spending before making your mortgage move

Lenders are now requiring a lot of details about your outgoings, and will want to see your bank statements to verify what you’ve told them. It’s kind of like  a lender “Stress Test”.

Don’t panic, they won’t hook you up to wires to check if you’re telling the truth – it’s just a method of  checking your ability to afford your mortgage even  if rates increased.

The lender will review your last 3- 6 months of bank statements prior to making loan application to verify your income and pay stubs match and to familiarize themselves  with  your spending habits.

It’s definitely worth tightening your belt in the months before you apply. Avoid un-necessary spending such as  buying  a round of drinks in for everyone or spending every Saturday night in the casino.

Living with frugality may just pay off during the months prior to buying your first home. The costs to move are forever increasing, so every penny you save means a bigger budget to meet unexpected costs.

Never overdraft

If you’re in overdraft, maybe you’re not ready for a mortgage.

If you’re incurring overdrafts, this will be seen as living close to the edge of your finances, most lenders will not tolerate overdrafts at all, especially in the last three months prior to loan application.

Sort your paperwork to speed things up

Lenders have to see proof of your income before they can offer mortgage application, so get your paperwork together in advance. Having all the paperwork together to send in one batch speeds up the process and reduces the chances of your application being reviewed by multiple people.

Many lenders require original statements & documents, request originals for these a few weeks in advance in allowing ample time to receive them.

Your lender may want to see some or all of the following:

  • Your last three months’ bank statements
  • Your last three months’ pay stubs
  • Proof of commissions or bonuses
  • Your latest W-2 tax form (showing income and tax paid from each tax year)
  • Your last three years’ accounts or tax returns
  • Proof of deposits (eg, savings account statements)
  • ID documents (usually a passport or drivers license)
  • Proof of address (eg, utility bills or credit card bills)
  • Gift Letter – If you’re getting help from friend or family member, the lender needs to know it is a gift (not a loan), and that the giver won’t part own the home.

Complete your application form correctly to avoid delays

Here are some tips for filling out the paperwork.

  • DO state your income exactly. Don’t round up.
  • DO give your FULL NAME – even middle names are necessary.
  • DO declare ALL your debts. The lender will find them anyway and withholding the info can mean a quick decline.
  • DO get your three-year address history exactly right, including zip codes.
  • DO give honest answers when asked about how much you spend.

Test drive your mortgage chances

Once you’ve completed all the steps above, your finances should be in great shape. Ask your lender for a “Prequel” to test your mortgage strength.

This is a conditional approval saying you may be approved for a loan, based on a quick check of your income and, probably, your credit file.  It offers no guarantees and should not be confused with loan approval.  Having a “Prequel Letter” accompany your offer to purchase a home, greatly boosts a sellers’ confidence that you’ll be able to complete the sale, so it may enhance the chances of having your offer accepted.

Don’t worry – just as a “Prequel” doesn’t tie the lender in to lending to you, it doesn’t mean you have to borrow from that lender either. You may find a better deal with another company but at least you know you’re on track if they’ll provide you with the letter.

 

Beware –  too many checks in a short space of time can harm your credit rating if the lender does a credit check and marks it on your file. This may damage your credit score.

Some lenders offer a ‘soft’ search option, which won’t be visible to other lenders (but will show up for you). Talk to the lender to clarify what type of credit check they’re doing before agreeing to one.

Rejected? Throwing yourself at the next lender’s feet will only make it worse

If you’re rejected – FREEZE! Don’t automatically apply again with a different lender. Too many applications can wreck your credit score.  Instead, check your credit file again, could you have missed something?

If there is an error discovered, get it corrected immediately before re-applying.

If there were no errors found and your credit file is still looking good, it could just be that the lender you applied to had its own reason for rejecting your application. It’s worth asking the lender why. They should be able to tell you the main reason you were turned down – and will tell you if that was your credit file.


Janet 
SimonsI am passionate about Real Estate and eager to answer all of your real estate questions! Text or Call me at 360-880-2356 or email me directly to ask about Buying, Selling or Investing in today's Real Estate Market - serving Lewis County & Thurston County, WA.

Janet Simons | Certified Residential Specialist | Real Estate Broker
Mountain Valley Real Estate