A lot of people don’t know how to approach a home loan–what does the average borrower need to know about your lender’s credit approval for a home loan?
The things you should know that will help you understand the home loan process better have a lot to do with what the lender is required to do in order to declare you a good credit risk.
For some future home owners, getting to “yes” for a home loan seems like a mystery; take some of the guesswork out of the home loan process by learning a few things about what the lender is required to do with your financial information.
The first thing to know about getting a home loan approved? Perfect credit is NOT to be considered for an FHA mortgage, but you ARE required to show through your credit patterns and your most recent (one to two years) credit activity that you have the ability to pay your monthly mortgage bill.
How do yo show you are a reliable credit risk via your most recent 12-24 months of credit activity?
It takes one important thing–being able to show on paper (through your credit report) that you are making ALL payments on time for 12 to 24 months leading up to the loan.
Late and missed payments show up on your credit report as negative information and your lender will not be able to justify you as a good credit risk if you have indicators that you’ve missed payments or have had late payments recently.
How recently? The 12 months to a year leading up to your home loan application–this information tells your loan officer they can be confident in your ability to pay on time OR that you might not be the best candidate for the loan.
And never assume it’s “safe” before closing day to apply for other credit or to take credit risks.
Borrowers who have signed an agreement with the lender committing them to the purchase of a home, paid earnest money, etc. could still have the loan canceled if the borrower’s credit picture changes and the lender can no longer justify the risk.
You read that correctly. Do not assume you can apply for new credit, skip a payment on a monthly obligation, etc. without the lender knowing. The lender is required to make sure your financials do not change dramatically in the days leading up to closing time.
It’s a good idea to review your credit reports and your financial data and ask yourself if you were a lender if you could justify approving the loan based on the information in your credit report.
Look at your credit report through the lender’s eyes and you’ll get a better idea of what it might take to view yourself as a better financial risk.