Getting Your Financial Ducks In A Row

Before you fall in love with a home, you need to make sure your finances are where they need to be to get your mortgage.  Let’s talk about the three key things that a lender is going to look at for your loan approval.

Credit Report – Your credit report is basically a written report that shows what bills you’ve had and how you’ve paid them over time.  Things that you’ve paid well will show up here as well as financial slip-ups like late payments, judgments, bankruptcies or foreclosures. 

The credit bureaus track your information and they will give your lender a credit score for you that reflects how responsible you’ve been with handling your bills.  The higher your credit score, the better. 

One of the first things you’ll want to do in the home buying process is look at your credit report and see just what is on it.  You can get a free credit report each year by going to www.annualcreditreport.com.  Your mortgage lender can also pull a copy and review it with you.  Working with your mortgage lender to review your report is often a better route then reviewing it alone because he or she can interpret what the report says and help you work out a plan to fix any bruises that might show up on it.

Income – The bank is going to want to see that your income is stable and ongoing.  Typically a bank will look backwards 2 years and forward 3 years.  Have you been working full time or in school full time for the last 2 years?  Are you working full time now and is your job likely to continue?  Is your income enough to cover your current bills and the new mortgage without stretching your finances too far? 

These are all things that the lender will ask.  Now, if the answer is ‘no’ to any of these questions, that doesn’t automatically mean that you can’t get a loan, but it does mean that you’ll want to have your lender look over your situation early on in the process to see if you are able to get a mortgage now or if you need to make a plan to get one sometime in the future instead.