Interest rates remain at historic lows. Yet, many buyers are sitting on the fence unsure whether now is the right time to buy, and if they would even qualify for a loan. There’s no magic bullet to get you the loan you want, but there are few things you can do to help get you on the right path. Here are some helpful tips to make you look your best in the eyes of a lender:
1. Check your credit – Know where your credit stands before you apply for a loan. A borrowers’ credit history can impact the amount required for a down payment, the interest rate or the amount of money they can borrow in relation to their income. Wells Fargo prices competitively and lends across the credit spectrum, but having a credit score of 720 or above is not only going to help you look better to a lender for loan approval, it may also help you get a better interest rate. Once per year, you are able to obtain a free copy of your credit report from each of the three credit bureaus by visiting www.annualcreditreport.com. In addition to viewing your report, you may also want to consider getting your credit score. There may be a small fee to get your credit score. If you’re interested in understanding and working to improve your credit standing, visit the Wells Fargo Smarter Credittm Center found at www.wellsfargo.com/smarter credit. The site has advice on establishing, improving and protecting credit as well as tips on paying down debt.
2. Decrease your debt – An important factor that lenders look at when qualifying borrowers is their debt-to-income ratio. This is the relationship between your income and expenses, amount of debt a person carries compared to how much income they make. The smaller your debt-to-income ratio is, the more attractive you are as a borrower. While debt to income requirements vary by mortgage programs, a good rule of thumb is to keep your total debt level at or below 36 percent of your gross monthly income.
3. Save for a down payment – In the current mortgage environment, borrowers need to have a down payment. Having 20% down is not a must but it will help get the best interest rate available and help you avoid private mortgage insurance. If you need help coming up with a down payment, try to find a down payment assistance program that might be able to assist you.
4. Show proof of all income – Can you repay the loan? That’s what lenders want to know when they consider your application. You must be able to verify a stable source of income. Lenders will review your employment history and will require current W2’s or tax returns if you are self-employed. If you have any other income you should bring proof of that to share with the lender.
5. Have some money in the bank – In addition to being able to show you can make your monthly mortgage payments and other responsibilities, lenders want to know that you have cash reserves. Some of us call this cushion a “rainy day fund” to handle those unexpected expenses that come with homeownership such as certain repairs.