Shopping for a home of your own can be an exciting time. It could mean you are entering a new stage of life from moving into a home where you could start a family or downsizing to that perfect retirement home. However, whether you are shopping for your first home or your third, the home purchasing process can be daunting and overwhelming at times. If you are ready to take the step towards home ownership, a good place to start is getting approved for home financing so you can put an offer on your dream home with confidence. Home financing approval could show you how much house you can afford, help you in budgeting, and guide you through shopping for a home.
We’ve gathered our top 10 tips to ensure a smooth home loan transaction:
- Pay Down Debt
- Know Your Credit Score
- Don’t increase the balance on any credit cards or make any large purchases
- Avoid making any job or income changes
- Don’t change your name
- Keep watch on your checking account
- Large deposits need an explanation
- Stay up to date on your income taxes
- Save all paystubs and bank statements
- Let your Loan Officer know of any changes
1. Pay down debt
Before applying for a home loan try to pay down any debt you may have on student loans, car payments, or credit card debt, etc. This will improve your debt to income ratio which could increase the amount of financing you are approved for.
2. Know your credit score
Make sure you know your credit score before you apply for home financing. There are three credit bureaus that you can use to find your FICO credit score; those are Experian, TransUnion, and Equifax. Look over your credit report for accuracy and take action to make any needed corrections or improvement.
Also, limit the number of inquiries on your credit report during the home loan process as this could lower your credit score.
3. Don’t increase the balance on any credit cards or make any large purchases
Purchasing a home can be thrilling and a monumental life moment, and often times the next step in homeownership is to purchase home décor, furniture, or to start planning home improvements. It may be difficult, however, resist the urge to make these major purchases or increase the balances on your credit cards. Your home loan application serves as a snapshot of your financial picture and you don’t want to do anything that could change that picture during the transaction process.
4. Avoid making any job or income changes
Try not to change jobs or make any changes to your income while seeking approval for a home loan as this would change your financial picture and could affect the amount you are approved for.
5. Don’t change your name
Your name is what links you to your bank account, credit score and other documentation you will need to provide with your home loan application. It is important that all of your documents representing your identity and financial background are consistent throughout the application process. Changing your name during this process could muddy your information and hinder you from getting approved.
6. Keep watch on your checking account
Be careful to not make any overdrafts on your checking account. To a lender, overdrafts could mean that you are a risk for paying back what you borrowed or could eventually cause your credit score to decrease and prevent you from getting approved.
7. Large deposits need an explanation
Large deposits into your bank account that are not specifically identified such as a payroll deposit will need an explanation of their source, so make copies of checks and be prepared to offer an explanation of deposits. If you are receiving funds from a family member to be used as your down payment, you may be asked for a gift letter from that family member explaining the purpose and intention of the deposit.
8. Stay up to date on your income taxes
Make sure you are up to date with your income taxes. Home loan lenders typically look for one-two years of personal tax returns, business tax returns if you own your own business, or W-2s or 1099s. Your income taxes will help determine how much you can afford now and through the life of the loan.
9. Save all paystubs and bank statements
During the loan application process, you may be asked to provide a few month’s worth of paystubs and bank statements to show that you have a consistent income needed to pay back your mortgage. You could save yourself some time by having them handy while filling out your application.
Related Blog: 7 Steps to Get a Home Loan
10. Let your Loan Officer know of any changes
If you make any changes to the details of your loan, such as the amount of your down payment, the source of your down payment funds, or change of insurance agent, etc. let your Loan Officer know right away. Changes like this could cause last minute complications and violations to the parameters of your loan program.
There you have it, our top ten tips to make the home loan approval process as painless as possible. Ready to make the leap towards home ownership? Contact Sammamish Mortgage to get started. We offer a variety of home loan products and programs and will walk you through each step of the home financing process so you can be comfortable and confident with your purchase.