By Ross Foster | If buying a home is on your list of goals for 2018, there are many potential benefits to starting the pre-approval process now. From credit issues, to saving for a down payment, you can get time on your side by finding out where you stand early.
Here are 4 potential issues the pre-approval process may uncover, giving you time to adjust before you buy:
- Credit: Most home loan programs have a minimum credit score requirement. If your mid-score is below that mark, finding out early will give you time to take steps to improve your score(s). Credit scoring systems are complex and dependent on how one factor relates to another. While there is no single or isolated thing a person can do to improve their score, most lenders (including myself) have tools we can use that examine the potential impact of certain actions for improving your score. While they can’t guarantee specific results, they’re a great way to begin strategizing and thinking about your credit in a real-life way. There may also be significant credit events in your past that have mandatory waiting periods before you can complete a home loan again (bankruptcy, foreclosure, etc.). There’s nothing worse than being ready to go on a home purchase, and finding out you have to wait another 6 months due to something that happened 3 years ago. Lastly, your credit report may have incorrect information that is affecting your scores. Fixing those items may improve your score, and the better your scores, the better your interest will be on your home loan when the time comes.
- Down Payment: Most loan programs require a down payment of at least 3%. Even 0% down programs like VA or USDA, may still require out of pocket expense to cover closing costs and prepaid items for your homeowner’s insurance and property taxes. The more funds you have available, the more options you’ll have to qualify for the best loan to buy the home you want. Getting a head start on your pre-approval gives you time to build your reserves so that you’re ready to buy on your timing next year.
- Income: The number one reason that buyers don’t qualify for the home loan they want is their debt-to-income ratio. This figure compares your income to your monthly obligations to determine what payment you can afford. This time of year is unique in that we’ll all be filing our tax returns for 2017 here in few short months. If you’re self-employed or will need to provide your tax returns to help verify your income, knowing that now may allow you to adjust your filing strategy to help you qualify for your home loan. If you have an upcoming promotion, raise, or job change coming this will impact your pre-approval as well. I suggest connecting with a trusted tax professional who can answer any tax-related questions you may have.
- Applicant Changes: Many loan programs allow for non-occupant co-borrowers (co-applicants that will not live in the home, typically a family member). If you are not in a position to qualify on your own for the property you want, you may pursue this route to improve your buying power. Knowing this ahead of your home search allows you to have the necessary discussions with your potential co-applicant and make sure you have your ‘ducks in a row’ before beginning your home search in earnest.
The above considerations are just a small sample of the common issues that come up when getting pre-approved for a home loan. Every situation is unique, which gives just one more reason why getting pre-approved sooner rather than later makes sense if you’re looking to buy in 2018.
If you’re not yet working with a lender, or would like advice on where to start, please feel free to contact me anytime at 503-975-6623 or via email at email@example.com.
This is for general, informational purposes only. Opinions expressed in this article are those of the author and may not represent the official policy or position of Mortgage Trust. Ross Foster is not a credit counselor. This is not a commitment to lend. Terms and conditions of programs, products, and services are subject to change without notice. All loans are subject to credit and property approval. Not all applicants will qualify. 4386 SW Macadam Ave., Suite 401, Portland, OR 97239 | 503.282.5626
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