So, don't let the fear of the unknown deter you from purchasing a new home. If you need help getting a mortgage, finding down payment assistance, improving your credit before you buy, or simply navigating the process of buying your first home, American Financing is here to provide guidance.
Here are a few things to consider before starting the application and pre-approval processes.
Once you’ve begun the application process, it’s important to avoid doing anything that may harm your chances of approval.
Regardless of whether the debt is secured or unsecured, lenders will compare your recurring monthly debts to your gross monthly income, or your debt-to-income ratio (DTI). It’s an important requirement that can make or break your chances of mortgage approval. So, try to avoid taking out other loans or lines of credit or at the very least, put them off until after you've been approved.
Prevent this by making large deposits (typically gifted money that does not come from payroll) at least 60 days before applying for a mortgage. And always be sure there is a paper trail, so you can help your lender source where the funds came from.
At American Financing, we ask that borrowers do not allow any credit inquiries or open any new accounts during the approval process. This is because it changes the credit scores and debt ratios since there are new debts to be added. And, any change in credit scores or history can have a negative effect on the mortgage rate. This includes co-signing for other people’s credit, which is the same as applying for your own credit in the eyes of the bank.
Don’t close accounts either. Closing an account reduces your available credit. For example, if you have credit limits totaling $10,000, and balances of $2,000, your ratio is 20%. If you then close an unused credit card with a limit of $6,000, you just raised your ratio to 50% — and that's a bad thing to a mortgage lender.
This includes verifying income and employment. So, borrowers who change jobs in the middle of the process create additional underwriting conditions which end up delaying the loan approval process.
Lenders typically need two years’ work and income history through tax returns, W2s, employment verification, and pay stubs. Commission or bonus income also requires a full two-year history.
If you are thinking of switching jobs and want to qualify for a home mortgage in the near future, consult with a mortgage professional to see if the job move will negatively affect your ability to qualify for a mortgage.
Remember, buying a home is a major investment that should be carefully planned out. Most home buyers end up spending money up front, during, and after the home purchase.
Before making that big leap into purchasing that dream home, check out a few more tips that are specific to cutting costs when buying a new home.
Do your homework on loan programs, and seek state or government assistance. Requiring just 3.5% down to get into a home, the FHA loan program provides government backing on loans underwritten by banks. Although your monthly payment may overall be higher, it may make sense for you to consider an FHA loan to pay minimal money upfront and then pay more later.
Or, if you reside in Colorado, take a look at Colorado Housing and Finance Authority’s CHFA loan, which can get you into a home for as little as $1,000 down.
Even better, if you’re active duty military or a veteran, the VA loan comes with no mortgage insurance and no required down payment to get into a home.
Shopping around to consider all loan options is always a good strategy to help cut home costs. We’ve already shared three examples that offer low or no down payment. But, there are many more loan programs out there. Our salary-based mortgage consultants can help with deciding which loan is best for your financial situation. Understanding current interest rates and fees will help you make a smart, educated decision about your new home purchase.
Once you’ve found the right loan, you’re one step closer to closing. But wait, did you know there are still ways to cut costs from your mortgage? Depending on the real estate climate in your area, you have the opportunity to get a portion of your closing costs covered if you negotiate with the home seller. Factors like how long the home has been on the market and if the market (in general) is struggling are good reasons to negotiate closing cost options.
Just don’t forget the bottom line: be prepared, save what you can along the way, and most importantly — focus on closing the loan and getting the keys to your new home. The mortgage process can be relatively straightforward so long as you follow your lender’s guidance and you’re ready to commit to making that dream (home) come true.