Steps to Avoid Being a Risky Borrower
Being referred to as a risky borrower is not something any homebuyer wants to hear. Whether you have been turned down already or you are not quite sure if you should even bother applying, becoming familiar with factors that weigh heavily on these decisions will help you make necessary improvements that will help make your deal look better than it already does.
Address Your Credit Report
You should not be just as surprised as the lender when you review your credit report together. Order your report well in advance and verify everything on it. If there are discrepancies file a request to have them fixed/removed. This should be done long before you apply.
Improve Credit Score
Some believe that if they improve their credit report that their score will also increase. This is not the case. Your credit score is determined by:
Types of credit being used – 10%
New credit – 10%
Length of credit history – 15%
Amounts owed – 30%
Payment history – 35%
Don’t Switch Jobs
Job security gives lenders peace-of-mind that there is a very good chance your employment status won’t change. They want to see that you have been at your job for at least two years. There are exceptions, so if you have recently relocated for a lucrative career opportunity, they may choose to overlook this change. They may also ask for a note on letterhead or an official contract, if applicable.
Save for a Down Payment
A lender will be much more likely to overlook other red flags if you have at least 20 percent to put down on your mortgage. This big lump sum lets lenders know you are serious. You obviously were committed to saving for some time so this is not a decision that was made without careful thought. Situations like this can mean it is less likely someone will default on a loan when they have that amount money already invested.
Pay Down Your Debt
If you are trying to save for a down payment then you really don’t want to pay off your credit cards, right? After all, that extra money can go in your savings account. Well, if you are maxed out on all of your credit cards this makes you look as though you can barely afford to pay your current debt. Plus, it makes your debt-to-income higher.
There are few people who don’t get at least a little nervous when applying for a mortgage. Since so many factors are considered when lenders decide whether to approve or decline a loan, you want to make yourself look as attractive as you can in all the above-mentioned scenarios.