How to Increase Your Chances to Get Pre-Approved
Tips for Loan Application and Home Buyers in Silicon Valley
There is no bad season to go home hunting! Winter season is the last chance for many home buyers to enjoy a tax break in 2014 and grab the last homes for sale on the San Jose real estate market before the Holidays. In my experience, you will not necessarily get a good deal, but at least face less competition
If you are currently in the market for a home, and given the proximity of Holidays (which often means higher spends), I thought I would share a few tips to help you get on the good side of your loan officer if you need a pre-approval letter.
Although each person’s financial journey is different, there are a few mistakes to avoid which will increase your chances to get pre-approved by your lender.
1. Avoid major purchases right before your application
While this may not be the right time to talk about this, do think about the financial strain of a large purchase and the way it will appear to your loan officer as you embarking on a quest to purchase a home.
A major purchase typically includes a car, a boat, expensive jewelry, furniture or appliances in particular.
Unless the expense/income ratio is low, or the need is unavoidable, you are better off delaying such purchases. Loan officers look at the big picture and evaluate your ability to manage short and long-term spending in a responsible way.
2. Avoid unusual deposits into your bank accounts
Lenders always look for odd patterns in your bank accounts, not just in your expenses but also revenues streams.
Moving money from one account to another will trigger questions from your lenders, an unusual deposit from overseas will need to be justified, recurrent proceeds attesting to a potential commercial activity (e.g. selling online) will also attract attention.
In other words, keep it simple and avoid any financial juggling between your bank accounts which will be scrutinized by bank underwriters.
3. Do not apply for any new credit but check your credit score
When you apply for a new line of credit and a lender looks at your credit report, an inquiry known as a hard inquiry will appear. Having too many of these on your credit report may indicate that you’re seeking credit from too many places and potentially trying to overspend or that you are in a tight financial situation.
Never a good sign.
However, if you’re looking at your own credit report, the inquiry is known as a soft inquiry, and these will have no impact on your credit score. Be confident that examining your own information is a good thing, and your score won’t suffer from your interest in it.
4. Fix potential fraud issues on your credit score
If there are expenses on your report that you don’t recognize, it may be a sign of fraud and that your credit cards have been compromised.
If that is the case, each credit bureau has a process for reporting suspicious financial activity. Checking your report regularly will help you stay on top of any fraudulent activity.
5. Understand options and alternatives with a bad credit score
If your credit isn’t at its best, that doesn’t mean that you can’t be approved for a loan. It often means mean that you may not be eligible for the best rates that lenders can offer. People with poor credit can still get a mortgage, but they will pay far more than even those with credit scores on the margin.
Also, as long as you have maintained your credit on a previous mortgage, you may be eligible to refinance, which will boost your credit.
Finally for those of you who may have damaged their credit score (e.g. as a result of a foreclosure or a short sale), you can always check federal programs such as HUD or FHA and seek information on alternative pathways to home ownership.