Long past are the days of easy lending and quick mortgage approvals. With lenders tightened standards even well-qualified buyers are feeling unease as their loan applications are slowly processed and highly scrutinized.
It’s not that banks are not lending money these days, it’s that it’s a more time-consuming process; a process that requires your financial house to be in order – with i’s dotted and t’s crossed.
better your home borrowing credentials.
Inman News, a leader in real estate industry news, with the help of Wharton School professor and contributor Jack Guttentag, recently released a 3-part series on how best to prepare – and repair (if needed) – your borrowing credentials as you get serious in your home buying consideration and process.
An important and helpful series, we bring to you a highlight of the insights and recommend you take a read through to get the specific recommendations offered.
Part I: Down Payment
Initial out-of-pocket home purchase investments for Buyers include:
- Down Payment
- Settlement Costs
- Monthly Payment Reserves (or “Proof of Funds”)
When preparing to save, consider self-help of family members, says Guttentag:
- Personal Savings
- 401(k) Funds
- Gifts of Equity
- Cash Gifts
Read Part I here.
Part II: Boost Your Qualifying Income
If a heavy upfront investment e.g. 20% down payment, is currently beyond your means, Guttentag offers insights as to how to prove “income adequacy.”
Things to consider:
- Maximum debt-to-income ratio
- Provide evidence to loan underwriter of you are repairing your inadequate income
- Utilize family or friends as extra sources of income e.g. co-signer, non-occupant co-borrowers or participating investors
- Reduce your debt payments
Read Part II here.
Part III: 6 Tips to Increasing Your Credit Score
A critical component to qualifying for a home loan is to prove – via your credit score – that you are a responsible, “safe risk” borrower.
If you do not know your credit score – or know improvements can be made – here are 6 ways, according to Guttentag, to get started:
- Pay on Time
- Correct Mistakes in your Credit Report
- Detach Yourself from the “Wrong Vendors”
- Reduce Balances on Revolving Credits to Less Than 50% of the Maximums
- Minimize the Number of “Hard Inquiries”
- Pay Off Collection Accounts
Read Part III here.
Courtesy of Inman News.