Whether you’re a first-time buyer or considering your options to refinance your mortgage, a home loan represents the biggest debt any individual can face in their life. As a result, today’s mortgage lenders are taking great steps to ensure that due diligence is complete before finalizing a mortgage. It is in their best interest to understand your financial picture and to propose a level of credit that you can afford in a sustainable way. There are many steps you can take to help you become a stronger candidate for your credit transaction. Here’s what you need to know.
1. Get and rate your credit history report
One of the first things a mortgage loan will consider is your credit history. There are two components in your credit history – a FICO credit score and individual accounts and details added to this number. There are three major credit bureaus: Experian, TransUnion and Equifax. The easiest way to see your credit report is to visit the Federal Free Annual Credit Report site, which allows you to view your credit report once a year for each office.
Your FICO score is a number up to 800 and indicates your total credit health. It is a combination of all your financial activities to the present day. 800 is considered excellent credit, and a score below 700 usually indicates a topic such as a short credit history or late payments. Points below 550 are considered very weak. Your score may need to be purchased separately from the detailed report.
2. Correct credit report errors and resolving persistent issues
Review the reports to look for errors and find out if you have unfamiliar debts or issues. If there is an error in the report, request the offices to request removal. Taking this step can significantly increase your credit rating. Eliminate outstanding debts or other issues that can help you increase your score and reduce the impact of adverse events on your record. Your credit report should be accurate, but it should be the best possible reflection of your current financial situation. Don’t let the mistakes go away without commenting and solving.
3. Avoid opening a new account for six months before applying for a loan
Most creditors receive your credit report when you open a new account, such as a credit card, or apply for a credit. In addition to affecting your score, the number of withdrawals of your report can potentially make red flags rise by making multiple efforts to get credit. Limit the number of queries you initiate in months to your attempts to obtain a home loan, if possible. This will help you look stronger during the detection phase.
4. Collect all your employment and financial documents
A mortgage loan will want to see various documents about your financial situation. First and foremost, they will want to verify your employment. Prepare records containing a verification letter from your employer and copies of your most recent salaries. Combine copies of your last three years tax return. If you have your own business, develop a file that contains copies of your client’s 1099’s and your tax returns showing their income and expenses over the last three years. It may also be helpful to show copies of customer contracts or copies of service contracts that show future revenue. Finally, make copies of routine documents, such as bank statements, investment accounts, letters of gifts you send home, and other documents that reflect your assets.
It is possible for a number of buyers to qualify for a mortgage for your dream home. Taking the necessary steps to put yourself in the best possible position reduces stress and helps you qualify for the best mortgage rates. Start by understanding your financial picture, correcting errors or outstanding debts, and preparing as many documents as possible to demonstrate your financial health. When you take these important steps, it’s time to discuss a qualified mortgage loan in your area to discuss your situation and learn more about the options available to you.