5 Financial Steps to Take Before You Apply for a MortgageEver been turned down for a mortgage? You’re not alone. Many homebuyers must apply to multiple lenders before getting accepted for a loan. If you’re stuck in a rejection rut, these five financial tips will help you find success on your next attempt. If you’ve never applied for a loan but you’re preparing to, these tips will help you do it right the first time. The key to getting a mortgage is proving to your lender that you’re a good risk. This is how the lending industry works. Capitalism is inherent in the system. There’s no way around it, though the FHA loan program allows higher-risk borrowers to bypass some standard lending guidelines. For the most part, if you want to get approved for a mortgage, you need to think like a lender. You need to know how to manage your money effectively. More than this, you need to prove to your lender that you’ve managed your money well in the past and that you’ll continue to do so in the future. 1. Make a budget. Budgeting is the core of financial management. A budget tracks where, when, and why your money does what it does. A budget is not a just retrospective tool. It is a forecasting tool, a predictive tool. If you’re planning to take out a mortgage for a home purchase, construct a budget that takes this new financial responsibility into consideration. What size mortgage payment can you afford to make each month? What size down payment can you afford to make today? Don’t guess at these answers. 2. Don’t ever miss a payment on anything. Never ever. Your credit score records the success or failure you’ve had dealing with debt in the past. If you’re 30 to 60 days late on a payment, whether it’s for a car loan, a credit card, or a college bill, your credit score will get dinged. Each negative mark on your report will remain there for up to seven years. If you let any payments slip longer than 60 days, you’re in real trouble. A payment made 90 days late will hurt your credit as much as a bankruptcy filing. Late payments are serious business. If you think you might miss a payment or you recently have, call your lender and ask for an extension. Lenders will often agree to this, and it will prevent the lateness from hitting your credit report. 3. Check your credit before you apply. If a lender pulls your credit, your credit score will receive a minor negative mark. In order to minimize the damage, make sure you stand a good chance of getting the loan you need the first time you visit a lender. You can do this by checking your own credit score before you apply. Credit inquiries affect your score. You are authorized to receive one free credit report each year. Use this report to determine whether or not your credit is strong enough to qualify you for a mortgage. If your credit is poor, repair it before you apply. 4. Don’t stretch yourself too thin. If you’re getting ready to take on a mortgage, try to minimize any other debt you carry. This will both improve your credit score and strengthen your financial foundation, better preparing you for success in the future. It’s also wise to avoid opening any new credit lines, even if you don’t plan to use them. Lenders may suspect that you’re in financial need if they see this activity on your report. 5. Be honest with the lenders you contact. Your lender will work with you. If you’re experiencing financial difficulty, say so and explain the situation. There are options that can help you. But you’ll definitely get turned down if you make false statements and your broker or loan officer discovers the truth later when reviewing your credit report or bank records. Just be honest. Budget, stay current on all bills, build strong credit, avoid other debt, and be honest. It may take time, but if you follow these five steps and manage your money wisely, you’ll have no trouble getting accepted for a home loan when you apply. |
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