Where do you begin to secure finances for purchasing a new home, refinancing an existing home, or obtaining a real estate equity line of credit? Obtaining a real estate loan can be confusing. You can simplify the process and avoid a lot of potential headaches by getting off to a good start. Here are a couple of ways to do so.
Build Your File
Organizing and compiling all your pertinent financial documents into a file is an absolute must for any potential borrower. Your file is a resume or profile that will give lenders an idea of what kind of debtor you might be. The typical file should contain financial statements, bank account information, investment records, credit card information, loan documents, other indebtedness, recent pay stubs, and tax returns for two years.
Consider Your Credit Rating
Another means by which lenders gauge your trustworthiness as a borrower is through your credit rating. Credit rating tracks your credit history, which includes such crucial information as the number of your open loans and the punctuality of your payments.
Treat your credit like gold. Credit ratings are important because they determine whether or not you will be approved for a loan and what your interest rate will be. Thus, you cannot take your credit rating seriously enough! We suggest checking your credit reports at least once a year or before making any major purchase to ensure the accuracy of the information.
What the scores mean. Ratings usually vary between 400 and 800. Anything above 620 is good. If you exceed 680, you are considered premium and may even get a lower interest rate.
Determine your credit rating. You can do this by contacting a credit reporting agency such as Equifax or Trans Union. Above all, don’t hesitate to consult with your lender if you need to improve your rating.
Prioritize Your Costs and Savings
Buying real estate wisely is all about credit and interest terms.
Prioritize your costs. Down payments, closing costs and additional expenses (such as inspections, welcome tax and moving expenses) should be at the top of your list. On the other hand, be sure to pay down on your current revolving and high-interest rate debts, such as credit cards, because this will influence your credit rating and interest rate.
Remember: lenders like stability. Instill confidence in your potential lender by avoiding any big, sudden moves both in your career and your finances. If that job change or big budget purchase absolutely cannot be postponed, check with your lender first and consider the consequences.
Pre-Approval
A pre-approval involves a lender making an assessment of a borrower’s buying capacity based on her or his income. A pre-approval letter also checks the applicant’s credit and proceeds with a verification of a borrower’s income. It generally takes a few days to process and will require some comprehensive documentation (e.g. employment, income, asset information, current monthly debt, and credit worthiness), but gives a clear and definitive guarantee of the loan amount a borrower is entitled to. A pre-approval can strengthen your purchasing power of how much house or real estate you are capable of buying. The pre-approval will be appealing in a competitive sellers market. It’s also time-effective since it reduces the time your lender will need to process and fund your loan.