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What Does a Lender Look for When Approving My Loan?

When beginning the pre-approval process, most lenders are looking for a few major things: Credit History, Capital, Employment, and Collateral.

  1. Credit & Credit History. Lenders will use your current credit and past credit history as an indicator of your ability to repay your debt. They will look at how much you currently owe, how often you borrow, how often you pay your bills – and if you often pay them on time, as well as how well you live within your means. To check your credit score, visit annualcreditreport.com.


  2. Capital. Capital tells the lender how much money you have, to put towards your down payment, as well as funds that will remain in your accounts after closing to be used for reserves. This includes such things as moving expenses, money required to turn on utilities, emergency repairs, or cost of ongoing maintenance. This is crucial information as you begin your home buying journey and apply for a loan.


  3. Employment. Employment tells the lender approximately how long it will take you to pay back your debt. They will check things like your previous employment history, as well as your current employment situation. Lenders are looking for stability in your income earnings trend to help determine its likelihood of continuance.


  4. Collateral. Collateral protects the lenders in the case that borrowers are unable to repay their loan. This is equally important to lenders as credit, income, and employment, as it acts as a safety net in the unfortunate circumstance that the loan is unable to be paid.

For more information on the Loan Application and Loan Process, contact your local VanDyk Loan Originator today!

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Mortgage News Matters

How to Build and Maintain A Good Credit Score

A good credit score is essential to any new or prospective homebuyer. It’s what will show your lender the likelihood that you will be able to pay back your debt. So, we’d say it’s pretty important!

The first step towards building and maintaining a good credit score is to first determine your credit standing. You can do this by obtaining a free copy of your reports from annualcreditreport.com. Once you have this information, carefully look over your report and take note of any errors that you find. These errors can then be disputed with the credit bureaus.

If you find that you have a below-average credit score, it can be refreshing to know that most credit blunders disappear from your credit report every 7 years. For more information on understanding and managing your credit score, check out our Credit Clean-Up Guide.

To better assist you in your credit building process, we’ve listed a few techniques below:

  • Apply for a secured credit card. The purpose of a secured credit card is to build enough credit to qualify for an unsecured credit card, which offers more benefits to its borrowers. A secured credit card requires a deposit to open. And the deposit is typically the same number as the borrower’s credit limit on the card. These work the same as a credit card and you won’t incur interest as long as you pay your balance in full.
  • Credit-builder loans. These are a type of forced savings program where the lender holds the money you borrow in an account that isn’t released to you until the loan is repaid. This can be a great option for those who are looking to build their credit.
  • Becoming an authorized user on a friend or family member’s credit card who is currently in good credit standing. Many will start building their credit by becoming an authorized user on a relative’s credit card. This option adds their payment history to your credit, showing that you are a reliable borrower – if they are in good standing.
  • Get a co-signer. If you have a family member or friend who is in better credit standing, you can also ask them to be your co-signer. This means that if you default on your loan, they are responsible to pay for it, so it’s best to be upfront with your co-signer about all the terms.
  • Have a long history of credit (start building credit early). The best way to start building good credit is to, well, start building your credit. Make sure that you start as soon as you can and maintain good practices like paying regularly and on time.

Once you’ve built up a good credit score, it may be helpful to follow a few techniques you can use to maintain.

  • Pay regularly and on time. One of the most effective ways to maintain a good credit score is to make sure you are paying your bill regularly and on time. To help you with this, consider setting up automatic payments so that you don’t miss a loan or credit card payment.
  • Maintain reasonable credit. Experts recommend keeping credit at no more than 30% of your credit limit if you can help it. If you must go over 30%, make sure you pay it back down to that amount as soon as you are able to.
  • Only apply for the credit you need. Think of it like a loan, only borrow what you need. Anything more is too much.
  • Pay minimum monthly balance on time. Paying on time shows your consistency and reliability as a borrower.
  • Keep old credit cards open. Closing old cards can have a negative effect on your credit, so it’s best practice to keep them open even if you no longer use them.

*The three major credit bureaus – Equifax, Experian, and TransUnion – have recently extended their offering of free weekly credit reports through April 22, 2022, in response to the COVID-19 pandemic. *

Categories
Mortgage News Matters

6 Common Mortgage Loan Myths

Applying for a Mortgage can often feel overwhelming, especially for first-time homebuyers who are completely new to the process. Confusing and conflicting information can leave many borrowers reluctant to even start the process at all.

In efforts to provide more clarity, we’ve debunked 6 common mortgage loan myths below!

  1. 20% down payment required. It is a common belief of many potential homebuyers, that no matter the type of loan you are applying for, you will be required to put up a 20% down payment. This information is harmful because it is not true and can deter a lot of people from even considering applying for a mortgage, who are sure they don’t have the appropriate amount of funds.

    Borrowers who are unable to come up with a 20% down payment can still be eligible for a loan when they get Private Mortgage Insurance or PMI. An added expense on your monthly payments, PMI provides protection to the lender in the case that the borrower defaults on his or her loan.  

    This type of insurance is a common requirement for some Conventional or FHA loans with down payments as low as 3-5%. Keep in mind that once you own 20% equity in your home, you can cancel your private mortgage insurance and continue to make your mortgage payments without the extra expense.
  2. Pre-qualification is the same thing as pre-approval. This common misconception is important to clear up, as both pre-qualification and pre-approval are extremely helpful to the home-buying process and both play an important role.

    Pre-qualification is an estimation of the amount of money you can borrow, based on your current finances and credit score. It provides insight as to which loan option is best for you.

    Pre-approval is a more in-depth examination of your finances, including a credit check, that results in a written commitment from your lender of the maximum amount of money they can lend you.

    For more on the benefits of getting pre-approved along with our pre-approval document checklist, visit our pre-qualification vs. pre-approval page here.
  3. Your down payment covers the closing costs. The down payment is usually one of the first expenses that a potential homebuyer will begin saving for. This makes sense because it is usually one of the largest upfront expenses you will have. However, when saving for your down payment, it is important to keep in mind that it does not cover your closing costs.

    Closing costs are a separate expense that covers your processing fees, like the appraisal and title insurance, and usually range between 3% – 6% of the total balance of your loan.

    For more information on Costs to Consider, refer to our article here.
  4. You must have perfect credit. Many people are under the impression that your credit must be perfect before even considering purchasing a new home. Though lenders are looking for borrowers with good credit scores, there are many options for those who have less than perfect credit.

    One option for borrowers who find themselves in this category is to consider applying for an FHA loan. Insured by the government, this type of loan is perfect for those who may not meet the qualification factors required for a traditional conventional loan program.

    It is also important to keep in mind that there are many steps you can take to work towards building good credit. For more on this, reference our guide on Credit Clean Up Tips.
  5. Applying for a mortgage will hurt your credit. While it is true that applying for any new type of loan or line of credit will harm your credit, it will only do so temporarily. This is the same in the case of applying for a mortgage. However, it is likely that you won’t see this temporary hit to your credit until after you’ve already been pre-approved.

    If you are trying to avoid any harm to your credit during this time, it is a good idea to refrain from opening any unnecessary lines of credit.
  6. You can’t be in debt and buy a home. If this myth were true, most homeowners would not be in their homes today. Debt, in many forms, is common amongst many Americans, whether they are in the process of paying off a student loan or currently making payments on a car. And neither of these things should stop you from owning a home.

    The important number to consider here is your debt-to-income ratio. This number shows the percentage of your monthly income that goes towards debt payments and reoccurring expenses. The higher your debt-to-income ratio, the riskier you are as a borrower. Therefore, you want a low debt-to-income ratio when applying for a mortgage loan.

    If you find yourself in a higher debt-to-income ratio category, consider paying down your debt or finding a way to generate more income. Both of these solutions will help you get started on a path towards a lower debt-to-income ratio and open more opportunities for you to buy a home.