This guide covers preparing credit profile to qualify for mortgage with a lender. Over 80% of borrowers who consult with us are folks who could not qualify at other lenders due to their overlays. Lender overlays are additional mortgage guidelines that are above and beyond agency guidelines.
FHA, VA, USDA, Fannie Mae, Freddie Mac has their own agency guidelines. Lenders need to meet agency guidelines BUT can have their own additional lending requirements called overlays.
Gustan Cho Associates has no overlays on government and conventional loans. One thing different at Gustan Cho Associates is that we never tell borrowers you do not qualify. As long as they have qualified income, we will help borrowers who do not quite qualify due to credit now. We will helpborrowers with preparing credit profile to Qualify for mortgage.
Preparing Credit Profile To Qualify For Mortgage With Income Credit and Asset
WHEN BUYING A HOUSE THE THREE MOST IMPORTANT FACTORS YOU SHOULD HAVE IN PLACE: When buying a home the three important factors are Credit, Income, and Assets.
Credit is the first issue I like to discuss with my clients. The credit score is important for a few reasons. Credit scores determine mortgage interest rates.
The down payment is determined by borrowers’ credit scores on FHA loans. Debt to income can be affected by credit score. Obtain a mortgage pre-approval to understand how much you can afford and demonstrate to sellers that you are a serious buyer.
Prepare For Credit Profile To Qualify For Mortgage, Click Here
Preparing Credit Profile To Qualify For Mortgage With Increasing Credit Scores
Preparing your credit profile to qualify for a mortgage is a crucial step in the home buying process. A strong credit profile can help you secure a lower interest rate and better loan terms. Here are some steps you can take to improve and maintain a healthy credit profile. Pay your bills on time:
Timely payments have a significant impact on your credit score. Reduce outstanding debt: Aim to lower your credit card balances and overall debt.
A lower credit utilization ratio (credit card balances relative to credit limits) can positively affect your score. Avoid opening new credit accounts: Opening new accounts can temporarily lower your score. Having a mix of different types of credit (credit cards, installment loans, etc.) can positively impact your credit score.
Check Your Credit Report
Obtain free copies of your credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion. Review your reports for any inaccuracies, such as incorrect account information, late payments, or accounts that don’t belong to you. Dispute any errors you find with the credit bureaus. Lenders often consider your employment history when evaluating your mortgage application. A stable job history can be viewed favorably.
Save for a Down Payment
While not directly related to your credit profile, having a substantial down payment can make your mortgage application more attractive to lenders. Try to avoid making major financial changes, such as switching jobs or taking on new debt, before applying for a mortgage.
Start preparing your credit profile well in advance of applying for a mortgage. This allows time to make improvements and corrections.
Remember that the specific requirements may vary between lenders, so it’s essential to communicate with them and understand their specific criteria. Additionally, it’s a good idea to stay informed about your credit profile regularly, not just when you’re preparing to buy a home. This way, you can catch any issues early and take steps to address them.
Qualify For Mortgage By Improving Credit Scores , Click Here
Consult With a Loan Officer
Talk to a mortgage advisor or broker who can provide guidance based on your specific financial situation. If you have negative items on your credit report, be prepared to explain them to the lender. Provide documentation and show how you’ve addressed any issues.
Getting your score up before buying a house is very important. There are certain tricks of the trade that can help borrowers qualify for mortgage by improving credit scores.
One way to get the score up is to pay credit card debt down to as little as you can versus the limits of credit you have. For example, if you have a credit card limit with $5,000 on it with a $4,900 balance, then your score will be lower than if you only had a $100 balance. Paying credit cards off completely can actually hurt your credit score.
Hiring Credit Clearing Consultants
Another way to get your score up is to hire one of the many credit clearing services out there. These companies can be very effective at eliminating some of your bad credit You need to allow a few months for these companies to work.
Do not be fooled by your score immediately going up. This is because they will dispute your credit that is negative.
This artificially hides this tradeline and your score immediately goes up. Credit disputes during the mortgage process can do more harm than good. It is not recommended hiring a credit repair company. These disputes will be required to be removed by an underwriter during the mortgage process.
Mortgage Approval Without Retracting Credit Disputes
There are ways of getting mortgage approval without retracting credit disputes. Medical collections are exempt from credit disputes. Non-medical collections with zero balance are exempt from credit disputes. If borrowers have credit disputes on non-medical collections with the total outstanding balance not exceeding $1,000, it is exempt from retracting disputes. Charged-off accounts cannot have any disputes. Late payments cannot have any disputes.
Mortgage Approval Without Retracting Credit Disputes, Click Here
Paying Down Balance To Exempt Disputes In Preparing Credit Profile To Qualify For Mortgage
One trick is if your total negative debt is less than $1,000 dollars and is less than 2 years old and is disputed then the underwriter will not make you remove it: If the derogatory credit tradeline is over 2 years old and greater than $1,000 the underwriter will not make you remove that either.
If you dispute a collection and the balance is $0 you do not have to remove this dispute.
But if there is a balance on it then it falls under the less than $1,000 within the last 24 months rule. Adding a new credit card with a large limit can help your score too.
Qualified Income Mortgage Guidelines
Income is the next issue I deal with for my clients. Most clients do not understand the complicated rules of what income we can use and what income we cannot. If you have been on the same job for 2 years and you either are salary or you are hourly and work the exact same hours every week then you can go right off. the income that you are making.
Most people think that this is them. But this is only around 20% of you. If you are salary and you get a bonus the rule states that you have to have gotten the bonus the last 2 years.
They average the bonus and add to the salary income. Note if the bonus is decreasing use the lesser amount. If you are hourly and work different hours every week then an underwriter will average your income over the last 2 years. If you have been getting overtime they will average over the last 2 years but if you only have been getting overtime for 1 year you cant use it at all. If you have a part-time job along with your full-time job then you need 2 years of working 2 jobs at the same time for the last 2 years.
Mortgage Guidelines On W-2 Income Wage Earners Versus 1099
If you have been W-2 wage earner for the last year and a half and then you go to a 1099 job you cannot use any income: 1099 employees need 2 years of tax returns to determine the deduction they take off their income. Adjusted gross income will be the qualifying income.
If you go from a 1099 job and then to a W-2 job then all you need to do is have 30 days paycheck stubs on the new job.
As you can see it is best if you have a straight W-2 income. If you own homes and have rental income or have your own corporation then I will write a whole new blog on that topic. For now, speak to your loan officer about how to calculate income.
Qualify For Mortgage, Click Here
Importance of Assets and Cash To Close
Assets are very important in getting your purchase. The biggest mistake consumers make is they think they can use whatever money they have in their accoun. Wrong. You cannot put cash from your mattress in your account. You cannot get a bunch of quick pays from your friends and use it. You cannot get a personal loan from a loan company and use it for the down payment.
what are Accept Funds to be Used for Closing
Acceptable funds for closing are the following:
- paychecks
- IRS refunds
- gifts from family executed properly sale of an asset that can be valued by a third party and proof of sale, inheritance and a few more
Many times when I do a mortgage I am “backing out funds” for closing. Backing out funds means subtracting them from the current balance and not using them for cash to close. In conclusion, when you are preparing to buy a home plan ahead and get your credit cleaned up, make sure your income is usable for a loan, and save your paychecks and your life will be much easier when going through the process.
