2. Credit scores and reports are based on history from lenders. These tools are used by new lenders to determine the risk associated with a borrower. Lenders do like to see many open lines of credit, including a 24 month reporting history. Some loan programs allow for borrowers to use alternative forms of credit in order to apply and qualify for a loan. Before you apply for a mortgage or any other loan it is important to clean up your credit by finding out where your scores are. It is possible to get a free credit report from each credit bureau (Experian, TransUnion, Equifax), so that you can review them noting any discrepancies or reports that are more than seven years old. Negative items more than 7 years old can be removed from your report, helping to increase your score. Make certain to correct all outdated and inaccurate information. A credit score of 680 is the minimum requirement and most lenders want to see something around 720 or higher allowing you to obtain a better interest rate.
3. Delay large purchases you were about to make until you have closed on the house. Lenders are going to check credit reports when you apply and right before closing. If you go on a last minute spending spree this will be noted and could become a hurdle to obtaining your loan. After the mortgage is closed on you can feel free to decorate the house as you wish, as well as within your current means. Always spend your money wisely.
4. Loan to Value (LTV) is a term lenders use when looking at an outstanding loan and a property value. Certain loan options require a borrower to have a larger down payment as a means of avoiding mortgage insurance. Certain government loan programs created help buyers obtain a loan for 96 to 100% of the home value. Currently a conventional loan requires 20% down making the loan for 80%. A property purchased at $100,000 would mean $20,000 down as the 20% down payment. If you increase your down payment it reduces the amount of mortgage required for the purchase, meaning your loan approval chances improve. There are community programs to help first time buyers.
5. Gather all your paperwork including pay stubs, assets, bank statements, credit documents, and income tax returns. Financial statements are required for the bank to process a loan. Without these documents the bank cannot proceed. Make copies of everything before handing them over.
Contributed by REALTOR Kelly Maltese with KFP Group at Keller Williams Realty