Buying a house involves getting approval for a large amount of money through a loan. You are not getting approval for a credit card or line-of-credit. A home purchase is most likely the single largest investment you will ever make. For that reason, you want to be aware of anything that might affect your mortgage loan approval.
Five factors that will influence whether or not you are approved for your loan include credit reports, credit cards, outstanding debts, employment status, and available savings. A more thorough discussion of each follows:
This is the most obvious factor that will affect your mortgage loan approval. Even if you think you know what is on your credit report, it is always best to obtain a copy from each of the credit bureaus before applying for a mortgage loan. You don’t want to be surprised to find out you have a bad credit score because of something you are unaware of from the past.
Close to 40 percent of credit reports contain errors, and if you are one of those people, your mortgage loan approval could be in jeopardy through no fault of your own. Check all three major credit agencies (Experian, Equifax and TransUnion) – a good report from one does not necessarily translate to the others. In most cases, each of the credit bureaus will have different information on file, so make sure you obtain your credit report on each.
Chelsea State Bank will look at your debt-to-income ratio that includes all monthly expenses such as credit cards. Watch your credit card usage closely during the months preceding a mortgage loan application. Any activity on your credit report that might indicate irresponsible spending could put your mortgage loan approval in jeopardy.
Avoid canceling any credit cards, especially an older account that establishes a long-term credit history. During the process avoid applying for several credit cards because those are red flags to mortgage lenders.
In addition to controlling credit card debt, other outstanding obligations need to be addressed as well such as car payments and student loans for example. If you apply for a mortgage loan and still have a significant amount of outstanding debts, you may be denied. Extending debt to individuals who already have too much on their plate is a non-starter. Pay as many debts as possible before applying for your mortgage loan.
When applying for a home loan keep in mind that most lenders will want you to confirm employment history. Usually this is at least a 2-year work history, and that the employment is likely to continue. Chelsea State Bank loan officers will contact employers listed in your application during the loan process to verify you still work there. So if you’re thinking of making a jump to a new company try to coordinate it so it’s after you close on your home.
When you apply for a mortgage loan, you have to consider all of the costs involved. Not only will a down payment be involved, but you will also be responsible for closing costs, movers, utility transfer and/or setup fees, etc. Make sure that you have enough money in your savings account before applying for a mortgage loan.
Learn more about the home loan approval process. Talk to one of our mortgage loan experts at Chelsea State Bank. It’s best to start with a pre-qualification which is a simple process to see if you can actually qualify for a mortgage and how much you can borrow. Contact our office by phone: (734) 475-4210 or online.