Many things can be done to improve the likelihood of real estate loan approval. Why leave your fate to chance when you can take positive steps that can make a big difference to you and your family?
- Create a Budget. Do you really know how much you spend each month? Many people don’t. You may be surprised. Gather your receipts for the past six months and categorize separately what you have spent for your house, auto, food, entertainment, medical, and other things. Then add up and average expenditures in each category to determine average monthly amounts. Don’t forget to write down the out-of-pocket change you spend on the morning latte, trips to the vending machine, etc. Be careful about discounting unusual expenditures due to unusual medical problems or repairs, because even though they may be unlikely to reoccur, the odds are good you will have some different unexpected expenses in the future. Be honest with yourself, because you and your family are the one’s most apt to suffer the consequences of not looking fairly at reality.
- Control Your Expenditures. Carefully study what you have been spending and decide what you can realistically cut-out or reduce. Snacks and drinks tend to cost much more at coffee shops than at grocery stores. Would it make more sense to bring an apple from home than to buy expensive calorie-loaded pastries and coffee at a coffee shop? Daily expenditures like that can really add up. It is easy to spend $5 or more a day during morning and afternoon coffee breaks. $5 a day, 365 days per year is $1,825 per year. Even if you only spend $5 a day, five days a week, you will spend $5 x 5 x 52 = $1,300 in a year. Would you rather have those break-time calories and the resulting body-fat or shiny new $1,300 kitchen appliances for your new home?
- Trim Your Debt. Most lenders want to see no more than 36% of your income going toward your debt which includes your house payment. They like to see that only 25% to 28% of the 36% amount is for your home mortgage. That means you should have no more than 11% to 18% of your income going toward other debt like credit cards, student loans, automobile loan payments, etc.
- Ask for a Raise. If it’s not time for a raise, take on a second job to qualify for a home mortgage. Speak to a qualified lender to gauge how much more you need to earn for your dream home or call me and we can work on it together.
- Save for a Down Payment. There are loan programs requiring as little as a 3.5% down payment. However, the best interest rates and terms will be available to you if you have a 20% down payment. If you plan to save whatever is left over at the end of the month toward your down payment, chances are it will take a long time to save the amount you want. Give your dream home priority by setting up a savings account for the down payment and automatically deposit a predetermined amount each month from your paycheck.
- Don’t Quit Your Job. Lenders like to see at least two years at the same job. You can get a loan with less time at your current job, but they will look at you more favorably if you demonstrate job stability.
- You Need Credit to Get Credit. Yes, I know that sounds crazy. Most lenders like to see that you are credit worthy. So, get a credit card and make payments by the due date if you don’t have at least three or four credit lines open on your credit report. However, use that credit card only to establish a reliable credit payment history and not to borrow money. More debt will make it more difficult to get a loan, but monthly charges that are paid in full each month will help convince lenders that you are credit worthy.