Bohemia, NY (PRWEB) July 1, 2008
Whether you're stuck in an adjustable rate mortgage, wanting to buy a home at today's discounted prices, or just wanting to consolidate some debt, you'd be much better off preparing yourself well in advance of applying for a home loan.
Score more Credit Restoration (CreditScoringSecretsExposed.com) makes regular inquiries into the challenges our clients have faced when applying for a home loan to help you avoid the same mistakes they've made.
There are 4 basic variables which determine whether or not you get approved for a home loan and at what rate. They are:
- Credit history
- Collateral (your home)
- Ratio of loan size to value of your home
The following 7 strategies will increase your odds of approval and significantly lower your qualifying interest rate.
1. Maximize Your Income Statements
Most lenders will require that you disclose your income from the previous two years and use this income to qualify you for a mortgage. They will ask for W-2 forms, tax returns, or bank statements to verify your income. The lender will then apply a formula to the income to determine your ability to repay the loan. A common requirement is that the mortgage payment cannot be greater than 28 percent of the borrower's gross monthly income, and the mortgage payment plus all other monthly obligations cannot exceed 36 percent of the gross monthly income (also known as Debt to Income Ratio or DTI). FHA allows higher ratios, and there are always exceptions to the guidelines.
Be sure to have your accountant review your monthly tax withholdings on your monthly pay stub. If you are getting more than $1,000.00 back when you file your taxes you're probably skewing your debt to income ratios which may decrease your chances of qualifying for a loan.
2. Lower Your Debts
Paying down debts lowers your debt to income ratio and can dramatically improve your credit score. Pay down your cards with the highest interest rates and pay down any installment loans so that you have less than 4 payments left whenever possible. Most lenders will ignore installment loans with less than 4 payments left.
3. Investigate Your Insurance Policy
Insurance agencies are quick to undercut one another to earn your business. Send your home owners policy out to at least 3 different agencies to get a quote. This one technique can save you several hundred dollars a year in lower premiums which in turn also helps improve your debt ratio.
4. Call Your Creditors
Most lenders will give you a lower interest rate assuming you've been a good customer who has made your payments on time. A quick call to their customer service department can lower your interest rate and save you hundreds of dollars a year, not to mention improve your monthly debt ratios.
5. Make Sure You Have a Rainy Day Fund
Most lenders require you to have anywhere from 2 - 6 months of reserves to qualify for a loan. Calculate your approximate mortgage payment to include taxes and insurance and that equals the amount required for 1 month's reserve. The minimum most lenders require is 2 months reserves. If you don't have on e already, open a savings account and place or save the equivalent of 2 months reserves at least 30 days before applying for a loan. By the time your loan is approved you'll have the required 60 days "seasoning".
6. Correct Past Credit Problems
Your credit score is the single biggest determining factor of your interest rate when applying for a loan or credit. A small increase in your credit score can save you literally hundreds of thousands of dollars. Your credit score is also much more easily influenced than any other criteria. For example, it's easier to remove negative items from your credit report than it is to get a job that pays you twice what you're making now.
The first thing you need to do is take a look at your credit report and see what the lender is going to see. While there are dozens of sites where you can see your credit report, there are only 2 sites you should seriously consider. Thanks to a recent law passed on your behalf the credit bureaus are required to provide you with one free credit report a year. You can access this credit report through Annualcreditreport.com
Note: I would not recommend purchasing the upgrade to see your scores. The scores provided are not true FICO scores and have no relevance to your lending qualification.
There is only one site you can purchase and see your actual FICO scores for all 3 bureaus. These scores are the same a lender would see when qualifying you for a loan. You can obtain your FICO scores through MyFico.com The best part is that this inquiry will not adversely affect your credit score. The only inquiries that adversely affect your score are when a lender pulls your credit for the purpose of qualifying you for a loan or credit line.
When shopping for a loan you can also use your myfico.com credit report to get qualified if it's no older than 90 days. This will reduce the number of times creditors will pull your score, thus dragging it down.
Your credit score is a major determining factor of your interest rate. It's a score between 300 - 850 which predicts the probability you'll default 90 days or more on your loan. The higher your score is, the less risk to your lender. Less risk means a lower rate for you.
If you note inaccuracies, such as creditors not reporting all the information on your account, or you see excessive inquiries you didn't authorize, or similar items which may be causing your score to drop, try using a reputable credit repair company to dispute the inaccurate items on your credit report. Contrary to what the credit bureaus would like you to believe, credit repair does increase your score and can work for 100% of people in most circumstances. This is, of course, provided you are getting the best advice and have an experienced professional working on your case.
Be realistic about your expectations. A hit-or-miss aspect exists in credit repair, because credit repair relies not only on the strategies of the person attempting to repair the credit, but also on the effectiveness or ineffectiveness of the creditors and credit bureaus in adhering to the laws.
Sometimes you want the credit bureaus and to follow the law, sometimes you don't- it all depends on your particular situation.
Credit repair will not help if you are currently missing payments or do not have the money to settle large unpaid collections or liens.
When researching a potential company to represent you, be sure to ask for testimonials and a written performance based guarantee. You should be paying for results, not the passing of time.
Avoid anyone who promises to delete 100% of your negative items or tries to sell you additional trade lines in the form an authorized user account.
Be sure to get your agreement in writing and always pay by credit card. This way, your merchant can protect you if the credit repair company turns out to be dishonest or ineffective.
7. Landscape and Deep Clean
An appraiser's job is to estimate the value of your home. They do that by comparing your home to other homes similar to yours that have recently sold within a reasonable distance to your own. You can influence the value of your home by making sure it's in the best condition possible before the appraiser comes out to take his pictures. You want the appraiser comparing your house to the nicest homes possible. A dilapidated car in the drive way is going to make that impossible.
Make sure your landscaping is neatly manicured. Make sure the roof is in good condition and there are no visible repairs necessary. Clean your house from top to bottom. It may even be worth spending a hundred bucks on a cleaning service when you consider the difference in your home's perceived value may be several thousand dollars higher. Sometimes the loan to value can be just a few thousand dollars from changing from a higher rate to a lower rate.
While it may be more challenging to get approved for a home loan, it's not impossible, especially if you take the time to prepare.