Qualifying For a Loan
You’ve decided to take the plunge and buy a home. There are a lot of reasons to do it: it’s a good investment, puts you in control of your monthly housing costs, and helps you build equity that can be used later. You also get the freedom to decorate your home any way you like and put your own individual stamp on it.
But before you get to do all that, you need to qualify for a loan. The first thing that your loan officer is going to ask you to do is provide documentation of your income and list your current debts and assets; they will also do a credit check to find out about your bill-paying history. This step makes many people nervous. But the truth is that a lot of people have less than perfect credit. That is why there are such a wide variety of loan options available. Chances are if you don't qualify for one type of loan, you will qualify for another.
Steer Clear of Major Purchases
There are some things you should and should not do when you are getting ready to buy a home. The first one is to avoid any major purchases. Do not buy a car, a boat or any other expensive items. This reduces your debt-to-income ratio. A debt-to-income ratio is a figure that mortgage lending money crunchers come up with after calculating your income and your monthly debt obligations. You want this percentage to be as low as possible so that you can qualify for the loan amount you want.
Avoid Changing Jobs
A second thing to make qualifying for a loan easier is to not change jobs, unless it is going to be in the same field and for the same or more money than you are making now. Lenders like to see a stable employment history. Most lenders prefer that you are working at the same job for at least six months before you apply for a home loan. If you are self-employed, you need to have at least two years of stable job history, along with documentation of your income. If you are thinking about being self-employed, do it after you buy your house, not before.
Clean Up Your Credit
If your credit is less than perfect, one way to help you qualify for a better loan rate is to take six months and re-establish your credit. Pay all your bills on time or early, and pay off as many outstanding debts as you can. Each monthly payment that you make on time will be reported to the credit bureaus, and a history of timely payments for six months will look good to a mortgage lender.
Other things to steer clear of include changing banks and moving your money around. You want to show your mortgage lender that you are a stable, responsible person who would be a good risk for a home loan.