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Before applying for a mortgage, here are a few things to bear in mind:
Get a free credit report (each of the three credit reporting companies, Equifax,
Experian, and TransUnion, are required to provide consumers with one free
report annually). Review it closely to see how you can improve your credit score.
Understanding your credit score
The majority of Americans have credit scores somewhere between 600 – 800.
For the best loan rates, lenders look for scores of 720 or above. Factors that
contribute to your score include:
your bill-paying history (paying your bills consistently and on time)
your current debt and available credit (maxing out your cards regularly, or
having many open cards and available credit, will have a negative effect
on your rating)
other factors such as the length of credit history and new credit applications
Be aware that using credit cards, even if you pay your bill in full every
month, creates a minimum payment, which mortgage lenders view as debt.
When possible, minimize credit card usage for the month or months before
you apply for a mortgage
Lenders require you to demonstrate a stable employment history,
so be careful about switching between 1099 and W2 status (for example,
transitioning from full-time work to freelancing or vice-versa); this could
potentially disqualify you because of your employment history.
Lenders require meticulous documentation of every dollar used towards
the down payment, so any large or unusual deposits into any of your accounts
will be scrutinized carefully. Whenever possible, consolidate all the money for
the down payment into one account as early as possible. Keep copies of all
checks, deposits, and statements that document the flow of money in and
out of the account at least two to three months before you will be paying a
deposit on a house or closing.
A check from an unrecognized source — for example, a gemach — can be very
difficult to explain to a bank and may cause your application to be denied.
However, gifts from blood relatives are acceptable if they sign a gift letter;
be sure to discuss the possibilities and limitations of such gifts with your
mortgage professional.
40 | 2020 Lakewood Home Buyer’s Guide
