Applying for a Home Loan – The Three Most Important Factors

Home loan application tips from our San Ramon mortgage broker. There are many factors that can affect your home loan mortgage application and possibly get you denied. Lenders want to see an applicant who is credit worthy and can show ability to repay. It is important to understand what factors will hurt you and to plan ahead to be sure you present the best financial picture to the lender at the time of the application.

1. Credit Score

Credit is a huge factor is approving a home loan mortgage. If you don’t have a good credit score, you won’t qualify for a conventional mortgage, leaving you with only sub-prime options. These are very costly with higher interest rates. It is crucial to know your score before you apply. This gives you time to fix any problems on your report. If your score is low, a few months can make all of the difference. Be sure to pay down credit card balances before applying for your mortgage. This accounts for about thirty percent of your credit score. You want to have low debt-to-limit ratios. Also, pay everything on time. Be sure not to open any new credit, as by buying a car. This will negatively affect your loan application. A score above 720 is optimal for a mortgage. Call our mortgage broker in San Ramon for questions about credit score. Read our blog articles about credit scores.

2. Employment

A strong employment history shows stability and proves you have the means to repay the home loan. Most lenders want to see that you have been with the same employer for two years or longer. It is also important to have been in the same field of work for two years. Once you have applied for the loan, you may not change jobs before closing. If you lose your job or take a new job, your loan will likely be denied. At closing, you will be asked for proof of employment, like a recent pay stub or possibly a call to your employer.

3. Down Payment

By saving a hefty down payment for your new home, you are a lesser risk to the lender. It gives instant equity to the home. It also proves financial responsibility by showing you can save. You no longer need 20 percent in order to qualify for a mortgage. However, if you don’t put down twenty percent, you will likely pay for private mortgage insurance. Many lenders require only 3 or 5 percent down payments. If you have good credit, you can get by with a small down payment. If your credit is poor, you will have to put more money down. Some borrowers who have poor credit choose to use a hard money lender. Hard money mortgages require as much as 35 percent down. These are not commonly used, but the possible high interest rate on them shows the importance of good credit if you don’t have the necessary funds for a down payment.

Ready to buy a home? Contact our mortgage broker in San Ramon to get pre-approved for home loan before hunting for a home.