Credit Scores and loan application

First things first

As an agent I often get asked what a client will need to buy a house? It’s not a trick question you need money… but this money may come in many forms. Liquid, crypto or from a loan most often referred to as a mortgage.

Most people purchase homes with a Mortgage loan. There are a ton of loan products out there so I won’t go into the details about the different types but all will take into consideration your credit score, debt to income ratio and your assets. In order to maximize your chances of getting approved for a home loan I’d like to share some tips and tricks on how to increase your credit score in order to be able to purchase a home.

I recently applied for a loan myself and was able to see first hand how the process works from the buyers side and forms and requirements the lender asked for. These are the documents the lender requested.  

You will most likely talk on the phone to a lender that comes recommended. The lender does not have to be local but it does help as they are more likely to know our forms and process better than those that are nationwide.

The application will be where they ask the basic questions and then they will request the following documentation:

1. A clear copy of your drivers’ license (color copy or smart phone photo no flash & please check for clarity)

2. Your Most Current 30 day’s worth of pay stubs

3. Your 2021 & 2022 federal tax return including all schedules – (If you own rentals or own your own business-  Rental income as well as any schedule C for your business)

4. 2 years of 1099 forms- if applicable

5. 2 previous years W2s (all employers)

6. Your most current 2 month bank statements (all pages even if blank, all accounts)

7. Your most current retirement account statement (with terms of withdrawal) If you may be using a retirement account for down payment they will need to see the terms of loan/withdrawal

8. Property Documents.

  • A current mortgage statement for all mortgages
  • Copy of HOA statement for all properties (showing amount of HOA payment) or letter from you stating no HOA
  • Your insurance Dec. page for your primary residence or any properties where it is not included in the mortgage payment

All of these documents would be submitted on a portal or to the lender directly never to your agent. All I would need is a copy of your Arizona Pre-qualification Form once approved.

You can do it alone but why not get the cheat code if it's available

My kids are gamers but me myself, don’t even know how to move my person in Fortine. I can tell you one thing though the best strategy when playing the game of home shopping is having a cheat code. That is your credit score and history and I don’t mean checking your Credit Karma or Sesame number I mean the whole thing. Your lender can help you or you can request directly from the credit agencies!

Listen, I know it’s uncomfortable allowing a stranger to study and observe your past financial decisions. You may feel overwhelmed with the questions the lender asks to determine if you are able to get approved. I promise it is worth it in the end. Specially since the only way to know how to fix or improve upon something is to allow the experts to critique you. Sometimes its better news than you were expecting and if credit or income isn’t optimal you can now have a game plan to be able to pay down on credit card balances or cut back on your spending. 

Here are a few tips for Credit Card users

  • Do not apply for new credit cards if you know you are going to be home shopping in the next year. Banks like to count the amount of credit allowance as well as the time you have accounts open.
  • Credit usage , try to keep your credit balance and utilization at 30% or below of your Allowed Limit
  • Canceling a credit card that you rarely use or have paid off can feel good. However, closing it can cause your credit score to drop. Unless you have enough time for you your score to recover, then you may want to hold onto that card a little longer.

Hacks and Tricks

While some financial budget experts suggest to pay everything in cash this is bad advice if you are trying to establish history and increase your credit score. Your score is needed to access the best rates.

  1. Buy something well in advance with credit. Something smaller like an appliance or furniture so it does not affect too much of your debt to income ratio.
  2. Become an authorized user – I have done this for a relative and it works! If a parent or trusted relative has good credit and is able to add you as an authorized user on a credit card with good credit this will allow you to borrow their credit history and score! That way it cuts back on the you need credit to access credit loop. Use this hack until you are able to get credit of your own.
  3. Pay off high-balance credit cards. In order to reduce your usage paying off the highest balance first is a way to start the snowball going.
  4. Keep old credit accounts active but reduce your overall utilization.
  5. Stay on top of revolving credit accounts.
  6. Avoid making late payments.
  7. Have a good credit mix. 

When in doubt it’s always a good idea to consult with your loan officer or lender to make sure your strategy will work! We want to assist you in making the best decision to increase your score. If you need a lender please reach out for our list of preferred lenders!

Compare listings