It’s arguable that the second most popular character in Western Christmas canon (behind Santa Claus) is a lender. Ebenezer Scrooge, to be precise. The Stephens-Brotsky Group appreciates the work of Charles Dickens as well as anyone, however we resent the bad name that Mr. Scrooge has left on lenders of all stripes!
Scrooge is famously stingy and cruel, but real-life mortgage lenders are legally required to behave better. We’ve previously written about how homebuyers can win bidding wars on homes by appealing to sellers with personality—however lenders can only be won over with objective, factual numbers, such as credit scores or loan-to-value ratios.
That said, it’s easy to feel like you’ve been “Scrooged” over when your application for a loan is denied. If you’re on the fence for qualification, here’s a list of things you can do to make sure that you qualify. Because we don’t want to look like a Scrooge; we want you to see your lender as George Bailey, the iconic banking protagonist of It’s A Wonderful Life.
Follow these tips and don’t get left out in the cold!
01) Avoid New Debt / High Debt Utility
This task is a must-read, especially during the holiday season: Don’t create new debt or put your debt utility into overdrive, even if you have plenty of cash reserves to justify the spending.
Whenever you make a purchase that requires multiple payments, you’re creating new debt. Adding these new debt accounts will lower your credit score. It will rise as you make these payments on time, but it will be enough to hurt your cause in the short term when you apply for a mortgage. You may qualify for less, you may qualify for a higher rate, or you may not qualify at all. Even if you’ve been preapproved, wait until closing before you make a major purchase. Nothing gives mortgage lenders a headache like a client who buys a new car mid-mortgage process.
This is something to think about before buying new appliances or jewelry during the holiday. Even smaller purchases can hurt your credit score. If you shop at a store such as Target, you may be offered a discount when you open a store-branded credit account. Don’t do it. That 10 percent won’t be worth it when compared to the credit ding you’ll take in return!
Be careful when using your current credit cards as well. If you maintain a high debt utility level, your score can suffer. Look at your maximum credit value, and try to use less than 30 percent of it. For example, if your limit is $3,000, try to keep the amount of debt on the card below $900.
02) Use Your Credit Card As Much As Possible
Wait, what? But we just said to keep your debt utility level as low as possible! How can you do both?
Perhaps you plan on spending $1,300 on Christmas gifts, meals and decorations this holiday season. Many credit users will put it all on their card, and then pay it all off on time when it comes the bill comes due. The mistake they’re making is waiting for the final bill.
There is no maximum on how many times you can pay off your card during any given month. So spend $200 here, $200 there—and pay it off as frequently as possible. Your credit score will benefit from your frequent use of credit, however your debt utility will never rise above that 30 percent target.
03) Don’t Look for A New Job…Keep Your Current Job
“I want to buy a new home, but my current salary probably won’t get me as much loan as I need for the home that I want,” you think. “I should look for a different job.”
The logic behind this thought process is sound, but it’s also misguided. A new job might bring a higher salary but it could still hurt your mortgage prospects!
One thing that lenders look for when offering a mortgage is stability, or a guarantee that you’ll be able to make payments for years to come, and not just today. This usually means checking to see that all applicants have at least two years at their current position. There’s nothing wrong with looking for a new job, but save it for when you’ve closed on the home and have a healthy rainy day fund in savings.
04) Put Forth A Bigger Down Payment
So now that we’ve shot down the idea of a new job, what can you do to get into that bigger home? One option is put forth a bigger down payment.
This works on several levels. For one, if you put more money down, you’ll need to borrow less and therefore the total you qualify for with your current salary will work. Secondly, you don’t actually need to use “your” money on the down payment. If a qualifying loved one is willing to give you a cash gift, you can apply that toward the down payment and closing costs instead.
Maybe forward this blog post to your relatives…give them some inspiration for the ultimate holiday gift!
05) Get A Cosigner
Alright, so maybe giving you thousands of dollars might be out of your parents’ budget this year. They can still help you secure a better rate, however.
A cosigner doesn’t have to put any cash toward the home, however they legally agree to shoulder the burden if the borrower can’t make payments. In return for their signature, you get a boost to your qualifications from their higher credit score. Don’t do this irresponsibly, however. You could seriously harm your loved one’s savings or even credit scores if they suddenly need to pay off your debt.
If you’re just now beginning to look into a new home, you probably won’t be looking for a mortgage until 2017, so we wish you luck! In the meantime, Happy Holidays from everybody at The Stephens-Brotsky Group!