A borrower’s guide to impressing a mortgage lender
Who doesn’t like to make a good impression? Whether it’s a first date, meeting the future in-laws for the first time or interviewing for a job, making a good first impression can pave the way for some of life’s happiest experiences. That’s especially true for home-buyers, whose ability to secure their dream home depends on first impressing a mortgage lender.
In many areas of the country a seller’s market is emerging, with lower inventory of desirable homes and rising prices, according to the National Association of Realtors. That means increased competition for buyers, and more sellers giving preference to buyers who approach the bargaining table with their finances in order. Real estate experts and finance pros alike agree: It pays to get pre-approved for a mortgage when you’re in the market to buy a home.
Gone are the days of easy approvals, no-money down mortgages and sub-prime borrowing, thanks to the Great Recession. Borrowers today need to show sound financial management skills and good credit in order to secure the best financing deals. If you’re in the market for a mortgage this spring, here are some steps you can take to impress potential lenders:
• Examine your credit - Your credit status is key to securing a mortgage. The higher your score, the better your chances of securing a mortgage for the amount you need at the terms you want. You should monitor your credit year-round, and take a critical look at things when you know you’re going to be house-shopping. Pay all your bills on time, pay down credit card balances and keep an eye on your ratio of credit available to credit used. Websites like freecreditscore.com can help you understand your credit and make informed financial decisions. You can track your credit score and report over time, and see how your financial behaviors impact your credit.
• Stay at your current job - Long gone are the days when lenders signed off on mortgages without adequate proof of employment and income. Any mortgage company you apply to will want to see that you have a reliable work history and income. If you know you’ll be buying a house this year, now is not the time to switch jobs. If you know you’ll need to change jobs in 2013, consider putting off a house purchase, especially if you may need to relocate for a new job.
• Cap other spending - Excessive spending in the months leading up to your mortgage application may make a lender question your ability to manage debt. When you know you will be applying for a home loan, reduce other spending. Avoid large credit purchases if possible. If you must use credit for a purchase, consider how it will impact your credit. Freecreditscore.com has a patented Score Planner that lets anyone visiting the website see how their financial behaviors can affect their credit score.
• Save up a substantial down payment - It’s harder than ever to get a no-money-down mortgage. Many lenders have stopped offering them at all. To maximize your chances of getting a good mortgage deal, you’ll need about 20 percent of the purchase price for a cash down payment. Beyond helping you secure financing, there are other very good reasons to save for a down payment. First, it will help you get into the habit of saving for a goal. And, when you do buy a house, the down payment helps ensure you have instant equity - and ultimately reduces your monthly payment.
Securing financing before you go home shopping can help you make the most of your opportunities, and helps you move quickly when you find a house you want. By taking a few steps to impress potential lenders, you can make your mortgage application process a successful one - and secure the keys to your dream home.
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