Preparing Before Buying
Before entering into a mortgage transaction, there are four (4) things that can improve your chances of approval and help you get the most competitive loan: your property value, your income, your credit score and credit history, and your debt. The rate and terms of your loan are directly tied to these criteria. The lower the loan-to-value, or LTV, (the percentage of your mortgage relative to your home’s value – for example a $100,000 home with a $70,000 mortgage balance equals a 70% LTV), the better your debt-to-income ratio, and the higher your credit score, the better your rate. So here are a few tips.
1. Value: Look at comparable homes that have SOLD in your area over the past 3 to 6 months. This will give you the best determination of your home’s value.
2. Income: Gather all of your income documentation (W-2’s, paystubs, receipts, bank statements and tax statements) and calculate your total monthly gross income to determine the amount you make each month. However, for budgeting purposes, also go off your net income.
3. Credit: As mentioned earlier, it’s a good idea to get a recent copy of your credit report with your credit score. You can do this online for free or at a small cost at a variety of services like www.annualcreditreport.com.
If there are any derogatory ratings on your credit report, have documentation ready, including detailed explanations and paid statements or releases for any negative credit ratings. If these are incorrect, contact the creditor and get a statement of this in writing and have them clear the rating from your records.
4. Debt: Finally, have a list of every open debt and recent statements with the balance, payment amount and terms.
By having this information, you will be much better informed as to what you can actually afford and it will help your Loan Officer process your loan quicker and more efficiently. As the old saying goes, “time is money”!