As your Millburn real estate agent, I’d like to share some times with you before you apply for a home loan, so that your chance of receiving a loan is high! The majority of applicants are accepted, but many are not. Let’s make sure you are one that is approved!
First off, you need to know what documents are required, so you can start collecting them now. You’ll need employee information from the last two years, along with pay stubs, W2s or 1099s, and completed tax returns.
You’ll need any information on assets, owned real estate, liabilities and bankruptcy. You’ll also need residence history, such as addresses and landlord information, for the past two years. For more information on what you’ll need for the mortgage process, check out this BHG Real Estate infographic.
To help ensure that you have what it takes to receive a home loan, check out this list of common causes for mortgage rejection:
- High debt-to-income ratio. The lower your debt, the better off you are, so try to pay some of it down if you’ve got a while before buying a home. An acceptable ratio is usually 60/40 or lower.
- Employment history. The more stable and long-term your employment history is, the better. If you move around jobs a lot, or you’re part time or self employed, your data will be looked at very closely. But you still have a chance!
- Credit history. This one plays a significant role in your approval for a loan, so the best tactics you should use are paying all of your bills on time, keeping credit cards open but not opening any new ones, and paying off cards once you use them. Bankruptcy and debt will come into play here, too.
- Collateral. Your new home acts as collateral for the loan. If an appraisal on the home comes back lower than expected, or the home has a lot of damage, the mortgage lender might deny you the loan. This one is a bit out of your hands, but do some research on home values in the area.
- Down payment. How much you need for a down payment depends on what type of mortgage loan you’re applying for, and what your credit score is. In general, the more you have saved up in cash as a down payment, the better. So start saving every penny you can!
For more information, check out this article from Mortgage Capitol Associates. Don’t forget, if you are rejected, you could also spend time fixing the problems and reapplying.