What stands between them getting a good home loan, one with a low interest rate and reasonable monthly payments, is basically a single, critical six-letter word: credit.
"The credit process mystifies many borrowers," says Ray Brousseau, executive vice president with Carrington Mortgage Services, a Santa Ana, Calif., home mortgage lender. "They worry that their credit may be imperfect or that a late payment from long ago will doom a loan application, when the reality is different."
Compounding the problem is that new homebuyers aren't getting the help they need from their banks and lenders.
A study from TD Bank reveals that only 58% of home mortgage customers "helped them understand the mortgage process."
That "knowledge gap" works against the mortgage borrower and lender, who have "similar goals," Brousseau says. "The lender will create a package to provide a full picture of the borrower'sfinancial status. In many cases, borrowers will be surprised that their credit standing is stronger than expected."
That said, consumers can take concrete steps to educate themselves and make the moves insiders such as Brousseau want them to take to qualify for a good mortgage.These three are a great place to start:
Have the right paperwork ready. You're much more likely to get a home loan if you have the correct paperwork right out of the gate. It shows lenders you know what you're doing, and it makes their job easier. To that end, make sure you have signed tax returns for the past two years; your two most recent pay stubs from your job; and complete copies of all financial statements (including bank accounts and investment portfolios) from the past 60 days. Brousseau says having all that paperwork in order can speed up the mortgage approval process greatly.
Pre-check your credit score. Snafus on a credit report are one of the top reasons mortgage applications are denied. "Look at your credit report in advance to make sure it fairly reflects your credit history," Brousseau says. "If you spot items that are inaccurate, you'll want to contact the credit reporting agency. Most negative items -- but not all -- fall off after seven years. Some bankruptcies stay on for 10 years. Check the report to be certain that outdated items are not included." He also notes that consumers can get one free copy of their credit report every year from AnnualCreditReport.com.
Don't give up because of a low credit score. Mortgage industry insiders see way too many mortgage applicants quit because they think they have a weak credit score.
"A good credit score can greatly help in the application process, but a lower score can often be overcome by selecting a certain type of mortgage product," Brousseau says. Carrington has recently made home loans available to people with credit scores as low as 580 (just watch out for higher interest rates at that level, though -- justified because you're a bigger risk factor for lenders if you have low credit health.)
"A wide range of financial options exist," Brousseau says. "Mortgage loan officers can review mortgage choices and explain the alternatives available in today's market."
These three tips aren't exactly state secrets, but Brousseau says most mortgage consumers bypass them just the same -- along with their chances for a decent home mortgage.