Increase Your Odds of Getting a Home Loan as a First-Time Homebuyer
10 min read
Of all the things in life that can be overwhelming, being a first-time home buyer tops the list. And if you’re thinking about applying for a loan in the future, a rejection letter might be one of your biggest fears.
Hey, we understand. Nobody wants to have their dream shattered. But sitting around and worrying about a rejection isn’t how to handle this.
Here’s what you need to know about approvals.
Cash is your friend
Buying a house is expensive—point blank. And unfortunately, the cost keeps some would-be buyers on the sideline.
If you’re looking to buy a house, make sure you get your finances in order because the more cash you save the better.
You should mentally prepare to put down at least 3% to 5%, and you’ll need another 2% to 5% for closing costs.
Know your credit to avoid surprises
The worst time to learn about credit problems is while you’re applying for a mortgage. Because even if it’s a credit error and you’re technically not at fault, it takes time to correct mistakes.
So if you’re thinking about getting a mortgage in the near future, get a free copy of your credit reports from annualcreditreport.com. Check for errors and fraudulent activity, and file a dispute if necessary.
Please, pay your bills on time
Life happens, so you might forget a due date. But while a single late payment might not jeopardize a mortgage, more than one 30-day late payment in 12 to 24 months could make it harder.
Pay your rent too
No, rent doesn’t typically appear on your credit report. But that doesn’t mean you can pay it late.
When asked to show a rental history, several late payments doesn’t look good. If you can’t pay rent on time, you’re likely to pay your mortgage late.
Don’t co-sign a loan
Cosigning a loan does nothing to help your odds of approval. If anything, this can hurt your odds of getting a mortgage, or at the very least reduce purchasing power.
So while it’s extremely kind to put your credit on the line for another person—don’t.
Don’t get into new debt
On another note, it’s also in your best interest to avoid new personal debt before applying for a mortgage—and more importantly, after you’ve been pre-approved.
Increasing your debt after getting pre-approved changes your debt-to-income ratio. This might not kill the deal. But it can delay closing—and give you the biggest scare of your life.
Report utility and mobile phone payments
It probably comes as no surprise that a credit history makes it easier to apply for a home loan. But what if you’ve never had a credit card or loan? Does this mean you’re forever a renter?
Well, not necessarily.
If you have utility payments or a mobile phone in your name, Experian has a program that lets you add these accounts to your credit report. As long as you pay these bills on time, you can build a positive credit history.
But there’s one tiny catch. This program only benefits your Experian credit report.
Don’t job hop
Granted, every job isn’t the right fit for everyone. So you might move around a bit until you find a place to thrive.
But while job hopping benefits your professional life, it might raise questions when applying for a mortgage.
The bottom line is that mortgage lenders look for stability, like staying with the same employer for at least 24 consecutive months. Frequent job hopping isn’t necessarily a dealbreaker, though—as long as you stay within the same field.
Include extra income
As far as using child support or alimony for qualifying purposes, this is totally up to you. Just know that lenders only accept this income under certain circumstance. And typically you must have received payments (on time) during the previous six months, and the support must continue for at least three years after closing.
When you’re new to the mortgage process, applying for a loan can be scary and intimidating. But information is power, and when you know what to expect you can worry less about rejections.
Ready to start your application? Reach out to see how Real Genius can provide the keys to your future.