5 hacks for becoming the boss of borrowing when it comes to getting a home loan.
The process of getting a home loan has many components to it. It’s no surprise. After all, this just may be the largest purchase most of us make in our lifetime. If you haven’t gone through it before, it can seem overwhelming. If you have been through the process, you know that there is no magical button you press to get a loan with nothing else to do. The good news is that there are a few things that you can do to make the whole process a whole lot easier. Here are five hacks that can help you do just that.
Check that credit report
Don’t just assume everything is hunky-dory with your credit report because you haven’t missed a payment. Mistakes can happen and things can show up on a report that you need to get fixed. No one wants to be surprised by some credit report hiccups that could derail the mortgage process and even affect your ability to get the best terms for your situation. Check out this post if you need help understanding your credit score.
Drop your anchor
The first price we hear sets our anchor and anything more than that anchor is expensive and anything below it is a bargain. That sounds arbitrary, but that’s how we humans are. So hack your anchor. Before you go and find out how much a lender will lend you, decide what is a smart amount to borrow. A rule of thumb is not to spend more than 36% of your income (before taxes and other deductions) on all your debt - that includes mortgages, credit cards, student loans, and other debts. Find this number first, and let that be your anchor. That way, you won’t have to worry about being talked into more home than you can afford because the effect of that anchor will kick in, helping you stay at the amount you know is smart for you.
Know what documentation your lender may want
Let’s face it. There’s a lot of information that your lender will need. It can be frustrating for the whole process to stop while you go off and hunt down the documentation. It’s much less stressful to pull together the information a lender may potentially need before the process begins. Here’s a list of the typical documentation you may need to provide:
- Your driver’s license
- Your Social Security card
- Pay stubs for the previous 30 days
- Proof of additional income, such as Social Security benefits, child support, or alimony (if applicable)
- W-2 forms for the previous two years
- Your tax returns from the last 2 years
- Your checking and savings accounts statements for the last three months
- Your retirement funds and other investment statements for the last three months
- The most recent statements for your credit cards, loans, and other debts
- A list of all your assets
- Proof of timely rental payments (if you’re not selling a home)
- Your credit report
- If you received a cash gift to use to make your down payment, your lender may want written proof that it is truly a gift and not a loan
Go one step further with the documentation
Consider other situations in your life that may cause your lender to ask for additional documentation. For example, if you have been divorced, your lender may ask for a divorce decree. Here are a few other situations when your lender may need additional documentation:
- If you're self-employed
- If you or a co-borrower is active-duty military or a Veteran
- If you earn a significant portion of your income from investments
The best route is to find a lender who will work with you to identify early all the documentation you will need.
Get pre-approved for a loan.
Getting a pre-approval gets the process rolling. Your lender can review your credit and help you see how much you qualify for. Additionally, your lender can identify any potential problem areas that may slow the process down - like a mistake on your credit report (see Hack #1). It can seem almost backwards to get a pre-approval before you have found the house you want to buy. But, it can actually make everything go a little smoother since you know what you can afford (especially if you’ve used Hack #2 and dropped your anchor) and you already have a lender who is working with you. Here’s an easy way to get started with your pre-approval >>
If you’re ready to learn more, check out our short video on better understanding the home-buying process. Or if you just have a question, give us a shout. In fact, starting with a simple conversation could be the best hack for you becoming the boss of borrowing.