Lenders like to know that borrowers have a strong likelihood of repaying the loans they take out and, as such, look carefully at an applicant’s credit.
Here are three must-dos that can help an applicant turn into a home owner.
Pre-Checking Credit Reports
Before even starting the home loan application process, borrowers are well served to check their own credit reports and see what appears. If everything is correct, their credit score can help them understand what type of loans are open to them and what they might cost.
When an applicant has credit issues, knowing gives him time to fix them. He can pay down balances, add new lines to his report or take other action in advance of applying.
Manage The Debt To Income Ratio
Mortgage lenders calculate a borrower’s ability to borrow based on the debt-to-income ratio. They add up the proposed mortgage payment and the other debt payments and divide them into his monthly gross income.
If he has too much debt or not enough income he won’t get the loan he wants.
To manage this, borrowers have two choices.
One is to earn more by taking on a second job. The other is to have lower payments.
Paying down credit cards can be a quick way to solve this problem.
Avoid Taking On New Debt
When an applicant takes on more debt while applying for a home loan, it can cause three problems:
- The inquiry can drop his credit score.
- The payments can change his DTI.
- The lender might not feel good about a borrower taking on more debt.
If you need help understanding credit and how to prepare for your mortgage transaction, contact Gene Neal at email@example.com