Get a Yes on Your Next Real Estate Loan Application!
Banks have gotten more and more difficult to satisfy in the last ten years since the 2008 housing bust. What banks are looking for in a real estate loan application has changed from extreme liberal to ultra-conservative. It will take some work to get approved for your nextloan application, but we can tell you some tricks to getting the process go smoother.
Banks require a minimum credit score of 640 in most cases. This means if your credit has a score less than this, some banks may accept you loan, but they will charge a higher interest rate for the risk they take in loaning to you. The best credit reports include the following; One rotating credit line, like a credit card or gas card, one installment loan (maybe two small ones), like a car loan or house loan and time. The biggest points to know are that the report needs to show the highest credit given to you and the longest account (loan, credit card, etc.) still open in good standing. The more you have borrowed in the past and the longer that account was open, the better. Start small and work up to $20-$30,000 and that will be a good credit report, BUT, don’t do it all at once. Credit goes down when you have too many inquiries (hard credit checks do hurt you).
The next part banks look for in a real estate loan application is your debt to income ratio. This means how much of your income goes back out in expenses. If you make $1000/mth and you spend $300/mth in car loans and house payments, that is a 30% debt to income ratio. Most banks don’t like to go over 38% on a loan application, BUT, even though you need to keep general expenses like utilities and groceries to a minimum, they don’t count against you in a loan application. Most banks (and credit agencies) only look hard expenses like car, house, credit card and student loan payments. These have to add up to less than their maximum debt to income ratio.
The last and just as important part of a real estate loan application is your cash flow. People don’t like pools and ponds as much as they do rivers and streams because the water is always changing. It stays fresh and new all the time. Banks think of money the same way. They (and I for that matter) like to see cash flowing into (and out of) your account monthly. Banks will loan to an employee with a steady provable paycheck job than they will a contractor or lawyer that works for themselves. Banks seem to think self-employed people are a bigger risk for a loan application even if they have money sitting in their account because they don’t take a w-2 paycheck like employees do. Having provable income every month will look better on a loan application. Having the same job or even working a different job in the same skill set looks better the longer you’re in that field of work.
A loan application is designed to tell your lender how likely you are to pay back the money they lend. Think like a borrower and work on your credit a little each month and a loan application will be accepted in no time.
Good luck,
Real estate problem solver