Your Credit Score is Vital to Getting a Loan
Credit Score.
When you apply for a loan, the first thing the loan officer will have to know is your credit score. The loan officer will have to pull your credit score from the 3 reporting agencies (Equifax, Experian, and Trans Union. Be sure they pull from all 3 to get a more accurate report. Your credit report is a history of how you have managed your finances and repaid debt. It provides a history of money you have borrowed and a history of your payments. ( The loan officer will have to pull your credit score even if you have pulled up your own). This history will show bills referred to a collection agency, bankruptcies, and tax liens.
Most information will be deleted from the credit agencies after 7 years.
Your credit score will determine the % of interest you will be charged and will determine if you are approved for a loan or not, because it indicates how able and willing you are to repay debt.
Bankruptcy.
If you have had a bankruptcy, it will need to have been discharged for 2 years before they will do a 100% loan.
Debt to Income Requirements.
All of your monthly debt payments including your proposed mortgage with taxes and insurance are totaled and then divided by your gross monthly income which gives you your debt to income ratio. Most lenders require this ratio to be less than 50% of your income.
Job History. You must have a stable job history over the past 2 years, or to stay in the same type of job or industry. Wait to change jobs until after your loan is approved if possible. Most lenders today will expect to get pay stubs during the last week of underwriting and will also do a verbal call to make sure of your income and that you are still working.
Rent History.
Most lenders want to see 0 to 2 30-day lates over the past 12 months. Most lenders will want rent verification in the form of can-celled checks. A few will accept a letter from the landlord. Making your rent payments on time is one of the best ways to qualify for a loan.
Mortgage Payment History. Most lenders want to see 0 late mortgage payments for the last 12 months. Keep in mind that no late payments will show up on your credit report unless you are 30 days late or more.
Income Documentation.
Once you are pre-approved for a mortgage, you will need to supply pay stubs for the last 30 days, and W-2s for the previous year. Overtime and bonuses may not qualify as they are not consistent income. Self-employed will need to provide tax returns for the previous 2 to 3 years to prove the required income. Aggressive tax plan-ing may result in not having enough “income” to qualify for the loan you want. You may have to go the stated income route but be aware that your interest rate will be 2 to 3 points higher, and your credit score will need to be about 40 points higher. A few lenders will allow you to use bank deposits to substitute for W-2 income documentation. Child support payments count as a debt and have a huge impact on debt to income ratios.
The Appraisal.
The appraised value of the property you plan to buy must by the same as or higher than the purchase price. The one except-ion to this is the USDA loans.
Rural Property.
Lenders don’t like to lend money on rural property, as they take a lot longer to sell if the property should go into foreclosure. Some will lower the LTV (Loan to Value) by 5 to 10%. You can count on being charged a higher interest rate.
Credit or Trade Lines.
The rule of thumb is that the less time the credit line has been established, the fewer lender options you will have, even if you have a high credit score. If you have no established credit score at all, it is tougher to get a mortgage than with low credit scores. The only exceptions to that are FHA, VA and USDA loans.