Buying a home is a major purchase that requires significant documentation. Buyers seeking a mortgage should be prepared to provide tax returns, bank statements and pay stubs, among other financial documents. Because there is so much documentation involved, there are numerous chances for hiccups in the process. The following are four of the most common mortgage roadblocks and how you can avoid them.
1. Negative Items on Credit Report. If you have a short sale in the past four years, this could stop your mortgage in its tracks. Background checks will also identify any unaccounted for properties you were associated with in the past seven years and you will be required to prove that you sold the property or no longer carry financial responsibility for it. Finally, in the time between pre-approval and the closing of the loan, be very guarded with any purchases you might put on credit and pay bills on time to keep a steady or improved credit score.
2. Income Changes. If at all possible, do not change jobs during the mortgage process. Lenders like to see at least two years of stable income, preferably with the same company or in a similar field. If you know you may be taking another job, this is something to discuss with your lender before you originate the mortgage. They may be able to assist you in choosing a different type of loan.
3. Debt to Income Ratio. If your debt to income ratio is too high (above 45%) you could have a problem getting a mortgage. If you know any debts will be coming due during the lending process (like student loan debt), bring this up with your lender before you originate the mortgage. If your debt to income ratio is too high, consider paying off the loans if possible or decreasing your mortgage amount.
4. Paying off Debt Incorrectly. Paying off debt can be tricky. If you have several credit cards, student loans, and car payments, you may want to work with a professional to get your debt under control. There are strategies to paying off debt that can increase your debt to income ratio significantly, greatly improving your mortgage worthiness.
If you will be purchasing a home in the near future, it could be beneficial to work a financial adviser or mortgage lender before you're ready to purchase a home. Having your finances in order before originating the mortgage will likely save you time and stress as you go through the mortgage process.
Have questions about purchasing a home in Reno-Sparks? We'd be happy to help in any way we can. Not only are we Reno-Sparks area experts, but we genuinely love living here and know you will too. Call 775-453-4568 for more information about purchasing a home in Reno.