5 Musts for a Traditional Mortgage Loan
5 Tips For Acquiring a Traditional Mortgage Loan
A majority of buyers use a traditional mortgage loan or program. Even so, many buyers still don’t qualify for the most popular lending options available. Depending on the application, there are still strict guidelines in place and a considerable amount of documentation needed. The lending process is a breeze – with a reasonable debt to income ratio, strong credit score, and significant down payment. Seriously, have everything in place well before you consider making an offer. The process gets easier the more prepared and organized you are with your information. If you are considering applying for a traditional mortgage here are five things to consider.
Review Your Credit Report
Everything revolves around your credit score. If you are considering bank financing, you should obtain a copy of your credit report (try creditkarma). Access to your report will provide you with all of the liabilities and negative items. Haven’t checked your score in a while? It is possible there are old accounts on there that catch you off guard. Maybe even an incorrect item, a collection can single-handedly pull your score down. The quicker you can check, and correct if necessary, the quicker your scores will improve. Do this before your offer is accepted. The difference between a 690 score and a 722 can impact your potential interest rate AND your approval.
Deposit Funds ASAP
Loan guidelines for investment loans are different than traditional single-family purchases. Investment loans require down payment funds to be seasoned for at least sixty days. Seasoned means the money needs to be in a dedicated account for two months (60 days). If you plan on pulling money from a stock account or anything else you need to do so as soon as possible. Lenders have strict guidelines regarding how long the funds must be in the account. Statements are required. In addition to the down payment amount, the lender can request additional months of the mortgage payment for reserve funds. The bottom line is that if you are considering using a bank, you need to have your down-payment saved and separated.
Pay Down Debt
If your score is dangerously close to the acceptable level you need to focus on how you can give your credit a quick boost. If there are old items on your credit report you can get them removed and have your score updated in as little as 30 days. However, this only works for legitimate accounts. The only other way to quickly improve your score is by paying down your debt. The available balance is second only to payment history when it comes to calculating your credit score. The lower your balance is to your maximum balance the higher your score will be. First look at situations where a balance transfer makes the most sense. From there you should consider pulling funds from your bank account to pay down accounts you are maxed out or near maxed out. Lower your debt and it results in your credit score increasing.
Review Bank Statements
You are required to supply at least two months of bank statements. In addition to verifying the deposit amount, you will also need to document any large deposits and withdrawals. A vast majority of real estate investors are self-employed and deal mainly in cash. The lack of stubs or W2 can create a problem when it comes to verifying items on the bank statements. Start by looking for anything over $500. Determine where the funds came from, or went, and write down an explanation. If your offer is accepted, you will need to write a letter for each item. Your lender will fill you in on the particulars.
Shop Around
Almost all local banks have the same set of investor programs as the large institutions. In 2018, most banks offer very similar products in many states. Your best bet is to shop around and find as many different local lenders as possible. The best way to do this is through a local mortgage broker. Most brokers have access to dozens of banks with several different programs. All it takes is for one to be a good fit for you. Before you commit to anyone you should talk to at least three different companies. Instead of having them pull your credit you should come armed with your credit score and bank statements. Ask about specific programs and guidelines and find the person or company you are most comfortable.
There are many advantages of using lender financing. The key is to find the right program for your credit profile. It is hard to change gears after the offer is accepted. Get everything in line before you start your property search.
Hope this helps! And as always if you have any questions, comments or corrections – please feel free to drop below! Thanks for reading!