Buying the 'Burg note:
If you're a first time home buyer you may not know just how much goes into getting a mortgage for the purchase of a home. If you'll be needing a mortgage to pay for your new home, you'll want to get working on getting approved right away. I can refer you to a fantastic lender who can get you a pre approval in just a day or two. Most of the time you're going to need that to submit an offer on a property. It just makes good sense to have your pre approval ready so when we find you just the right house, you can get it under contract before someone who was more prepared beats you to it.
If you need a mortgage to buy a home, rest assured: Prospective lenders will ask you a lot of questions. After all, loaning someone money is a risky proposition, so they'll want some assurance you'll pay them back!
So what questions might they ask you? Allow us to outline the most common queries during a consultation, and to tell you what constitutes a decent answer—and what doesn't. That way, your mortgage pre-approval process won't be derailed by any big surprises.
Ready? Make sure you have answers to these questions before you start the loan application process.
1. What is your credit score?
For starters, let's look at your credit score—the numerical representation of how well you've paid off past debts. If you're in the dark on what your credit score is, get your score for free at CreditKarma.com, or your full report at annualcreditreport.com. You may also be able to get a free score through your bank or credit union, or another financial institution.
Lenders typically offer the best interest rates to customers with the highest credit scores, generally 750 and above. Yes, you may get a loan without a good credit score. But you'll pay higher interest rates if you do. Try to improve your score before you apply for a loan.
2. Do you have sufficient credit history?
A common misconception is that if you have a great credit score, you have the credit issue covered. Casey Fleming, author of "The Loan Guide: How to Get the Best Possible Mortgage," sees people who are proud of the fact they only have one credit card, which they hardly use, and a credit score of almost 800.
"It's not just the score," he says. "The whole purpose of the credit report is to have some sort of record that you have been able to establish credit and pay it back as agreed, reliably." If you haven't done that, lenders won't be in a hurry to lend you money. You have what is known as "thin credit."
If you only have one credit card, for example, you may not qualify for a prime loan with the lowest interest rates, regardless of your credit score. Your loan officer may recommend that you go out and get another credit card, or take out a small car loan, and come back when you have built a better track record of paying back debt.
3. How much is your countable income?
"Not everything you make necessarily counts," warns Fleming. "It's not unusual for someone to have this idea they make $200,000 per year, and an underwriter says they actually make $100,000 per year."
The reason? A lender may not include any income that is sporadic, new, or for something that the lender determines isn't a sure thing. Plus, ending a verifiable source of income you've had for years can also send up red flags, even if you have a new source of income to take its place.
Heather McRae, senior loan officer at Chicago Financial Services, Inc. in Chicago, IL, had one mortgage refinance borrower who retired during the loan approval process. Even though he had plenty of money from his pension and Social Security benefits, they had to wait a couple of months to document his new retirement income before he could get the loan.
Take-home lesson? Make sure your lender is aware of any recent changes to your income—not just the amount, but where it's from.