Know your credit score and don't make fast moves
You might be surprised to know it can feel like you're training for the Olympics to prepare for buying a house, but two lenders offer their advice on how to win the gold.
Huntsville's Pat Sigle, loan officer with New South Federal Savings Bank, and Toni K. Roberts, mortgage advisor with ERA Mortgage, say a little preparation can promote a much smoother loan application process. The paperwork can seem endless, but it's not all that complicated or demanding when you consider it will help you land your dream house.
Sigle begins your paper trail journey toward getting your loan with these tips:
Pull your own credit report and understand your credit rating. If there's a problem, you can address it before it affects your house loan. Knowing the score also arms you with information on what the lender will tell you in relation to that score. Also, knowing your score helps lenders put together a loan program more appropriate to you. For example, if you have high debt but a great score, it'll help you get the loan.
Interview lenders and ask about loan programs before actually applying for a loan, because every application means they're pulling your credit, and that will hurt your credit score.
Just because you're approved for a loan doesn't always mean you should get one at that time. Be realistic and take a hard look at your finances.
Don't expect the same loan as your friends, family or co-workers. Sigle says loan programs are not cookie-cutter for every borrower; they can be different. Instead, you should meet face to face with lenders and go over every question you have. She warns that too many people are in such a hurry that they don't take the time to do it right. Also, she warns "borrowers don't need to jump on mail-in ads from lenders out-of-state or on-line. Out-of-state lenders are not familiar with the local market and do not always disclose all the costs that a borrower may incur at closing, or up-front expense. There is nothing better than meeting your lender face-to-face."
Don't move money around shortly before applying for your loan. Many people think when they're buying a house they need to pool their money in savings. While lenders only see your money total, regardless of what accounts it is in, they do consider movement of large deposits that do not appear to be normal payroll deposits or what they call "seasoned funds" for the past three months, so be prepared to document or explain the money. Bottom line – if you don't want to get stuck doing paperwork, leave your money alone for your house buy.
Also, if you want to change banks, do it three months before you go house shopping so it will also be considered a "seasoned account."
While we're on the subject of documents, don't destroy them from the last three months or you'll have to go document hunting. We're talking about pay stubs, bank statements or federal tax returns. If you want to make a lender smile, just put this stuff in a folder so you can gleefully hand it over. Be prepared to provide documentation on a divorce or bankruptcy if it will affect your loan application. If you're self-employed, you'll need to provide at least two years of tax returns.
Pay down credit cards or other loans, because that all factors into your debt ratio and can affect your loan.
Roberts also offers these before-house shopping cautions:
Don't pay an agency to "clear up your credit history" because that history can't be changed. Start planning today to improve your credit standing start a savings plan.
Don't open any new credit card accounts or transfer balances to open a new credit line if you're about to go house shopping.
Don't have any credit card balances over the "limit" as this appears as a late payment.
After you've started processing a loan application, don't charge more on credit cards.
Don't have any late payments for the 12 months preceding your loan application.
Don't leave a salaried position for a commission-based pay scale right before a loan application.
Don't pay bills with cash. No lender can document cash.
Don't cash your pay check and deposit portions of it into your bank account. Deposit the entire check and then withdraw cash.
Don't have overdraft changes on your bank account for the previous three months.
Sigle and Roberts recommend you not go house shopping unless you've been pre-approved for a loan. Sigle says you need the pre-approval to know how much house you can afford, and to avoid a potential legal mess if you sign a contract for a house beyond your means.
Likewise, don't make large purchases like getting a vehicle, especially if you don't know your credit rating and debt-to-income ratio. Roberts says, "Do not buy a car before you buy the garage to put it in."
After you've started processing your loan application, they also advise against increasing charges on existing credit cards.
You shouldn't change jobs in a different occupational field before the loan application, either. Sigle says changing jobs wouldn't disqualify you from buying a house, but try to stay in your field while buying a house. If you're a new, young professional just out of college starting a new job within the scope of your degree, then she can use the diploma and transcripts to document work history. At this point, she says education is on-the-job training and can count as work history.
Sigle adds it's also best that a borrower not have had several jobs in the last two years, because income appears unstable.