Buying your first home is exciting, wonderful and scary. Your home will be a place where you raise your family, build lifelong friendships, and will likely become a central part of your financial stability. Waiting for a mortgage underwriter to approve your loan can take several anxiety-filled weeks.
Here are some tips to help you succeed in getting your loan approved quickly.
Save for the down payment
You cannot borrow the down payment for most mortgage loans. For some, you cannot even accept a gift. Parents often offer to lend their adult children the money for a down payment. That can be problematic. If your parents are genuinely willing to help, consider moving back in with them for a year while you save money for a down payment. As a general rule of thumb, you'll need about 7 percent of the purchase price of the home to qualify for a typical mortgage, including some closing costs and post-closing reserves. Get specifics from your loan officer.
Work on your credit
Before you start thinking about buying a home, you should be working to establish a good credit record. You don't have to borrow a lot of money to prove you have solid credit. You've likely been paying rent and utility bills on time. That can be documented. (If you haven't been paying on time - start today!) Pay everyone for everything on time. If you can't afford it, don't borrow the money to buy it.
Sell your car
If you have a car with a loan, consider selling it to reduce your outstanding debt and, if possible, buy one for cash. If your car is nearly paid off. That is, by making the regular payments it will be paid off in less than a year from the time you will submit your loan application you don't need to do anything special. The underwriter should ignore the loan. Just commit now to keep driving the car long after it is paid off. (My wife and I sold our cars and bought an old clunker that we drove for 18 months in order to qualify for our mortgage.)
Pay off consumer debt
Reduce all of the debt you have as much as possible. It may be difficult to do this while you're saving for a down payment, but the debt will work powerfully against you both before and after you buy your home. Get rid of it.
Consolidate and extend remaining debt
This step is not a substitute for the prior steps. Get rid of as much debt, as possible. Once you've reached your limit and your debt is manageable, look for an opportunity to combine and extend any remaining debt to minimize the payment. You should complete this at least 90 days before you start looking for a home. Credit applications near the time of your mortgage application are a big red flag.
Before you find a home, get "prequalified."
Different lenders have different names for and offer varying assistance toward helping you figure out how much money you can afford to borrow. Regardless of the form it takes, this free consultation should give you a good gauge of what you can afford. Be sure that your lender reviews your credit report, at this stage, so you both know before you start writing offers if there are problems that could prevent you from getting approved for a mortgage.
Provide, don't hide information
It is virtually impossible to hide financial information from the underwriters. Your entire life history is just a mouse click away. If there has been a financial problem in the last seven years, disclose it early and provide a complete explanation for what happened and why it will never repeat. Underwriters-not the loan officer with whom you'll work directly - will make the loan decision and they will ask for all kinds of information. Even the loan officer may not understand why the information is being requested. Provide it quickly if you want your loan approved.
By following these basic steps, you'll have prepared yourself to buy a home where you and your family can build a happy life together.
