6 Ways to Look Like an Attractive Borrower – And Do It With Confidence

Congratulations, you’ve finally saved your hard-earned money for at least a 10 percent, or even a 20 percent down payment. Que the house shopping, right? Well, maybe not just yet. Yes, you’re getting closer to your dream of owning a home, but getting you to look like an attractive borrower is key. It’s time to get approved for a mortgage, an important step that simply can’t be overlooked.

Besides, as they say, “Anything worth having requires hard work and effort,” and buying a home certainly falls into that category.

So, before you start going to any open houses just yet, it’s best to start the pre-approval process. No sense in wasting time looking at properties that are beyond what you can actually afford, anyway. Because then, once you’re pre-approved, the whole process will move smoothly when you do find that perfect place. For sellers in a competitive market, this shows that that your offer is serious which could help you win in a bidding war.

How to Look Like an Attractive Borrower on Paper

Worried about qualifying for a loan? You’re not alone. Given a home will be one of the biggest financial commitments you’re likely to take on, it pays to know what lenders look for in advance to boost your chances of securing one. Lenders want borrowers who are not only low risk, but also reliable. Let’s take a look at some simple ways to make you, as a borrower, look as attractive as possible to a future lender:

1. Prove Yourself

No matter how much you’re bringing in, mortgage lenders want to see job stability and consistency in your paychecks over a long period of time. If you jump from job to job faster than the change of seasons, this might be a red flag. To ease their minds and help your case, document as much as you can, calculate trends and averages showing you have a steady, reliable income. And if you expect to change jobs during the mortgage application process, be sure to let your lender know upfront.

2. Always Pay Bills on Time

Late payments are a bright red flag that indicate irresponsibility and instability to a mortgage lender. Once in a while, being forgetful is understandable, but if payments are consistently late for auto, utilities or credit cards, for example, banks will consider you a risk. Here’s a simple tip: schedule a monthly reminder in your calendar for a few days before each bill is due to prompt you to send a payment on time. Every time.

3. Show Savings History

A padded savings account looks great in the eyes of the bank. They’ll see that you have planned for those “just-in-case” emergency funding situations that life often brings. Plus, proof that you are able to make a consistent savings deposit shows lenders that you’re also likely to make your home loan repayments as well.

Additionally, you’ll want to save enough not only for the down payment but also the closing costs. Closing costs can equate to three to five percent of the loan, so do your math and be prepared.

4. Clean Up Your Credit Score

Be vigilant about keeping your credit score high. If you have a sound credit history, you’ll have a better chance of getting approved. Even one small “black mark” can alarm the bank. Buyers with scores over the 700 mark typically have the most leverage in securing attractive interest rates. Freecreditreport.com offers a free annual credit report so you can pull a report and see for yourself.

5. Lower Debt-to-Credit Ratios

Even with a solid credit score, if you have a lot of credit cards with high max limits, this can put you at a disadvantage – even if you haven’t ever reached those limits. Lenders would rather see low maximum limits with low balances… why? If a lender looks at your credit report and sees credit cards with high limits, they take into consideration what your debt-to-income ratio would be if you were to max out those cards after the mortgage has been granted.

Some advisors will advise keeping a few credit cards with varying limits open, but what number constitutes a few can differ. When it comes to getting your finances in shape to apply for a mortgage loan, the best thing you can do is pre-qualify with a mortgage lender to see where your credit and credit score stands before finding a home.

6. On Your Mark… Get Set…

Have everything ready to go. Organize paperwork to show the bank that you are a serious homebuyer who is prepared to take homeownership seriously. When you’re applying for a loan, have the following documents in order:

• Photo ID
• Proof of job stability
• Details of income including two recent (and consecutive) pay stubs
• Credit history
• Details of assets including investments, funds, vehicles, savings accounts, etc.
• Other expenses including what you’re currently paying in rent and other living expenses
• Liabilities including credit cards or other loans

Go!

Qualifying for a mortgage isn’t always an easy process, but if you take the time to position yourself as an attractive borrower on paper, you’ll be much more successful. And now, you can start scheduling your open house tours!