A real estate loan is the largest amount of money that most people will ever borrow in their lives. To ensure you get a good deal on your loan, you need to look good on paper. Lenders want to work with responsible borrowers who have a high likelihood of repaying the loan.
So, how do you improve your situation to make yourself look appealing to real estate loan lenders? Work through these tips in the year or so leading up to the loan application.
1. Make sure your tax returns reflect your true income
Your tax returns should always show honest and accurate information on your earning situation. But many people understate their income. For instance, some service workers don't report all their tips, and many business owners overstate their expenses.
Both of these tactics lower your tax liability, but they also make you look like you earn less money than you do. When you're trying to attract lenders, you need ample income.
If your tax return reflects a lower amount than your actual earnings, you may want to adjust that. You can follow this rule moving forward, or you can amend your old returns.
2. Work on credit repair
Your credit score directly impacts your interest rate and the other terms on your loan. Spend a few months or even a year working on your credit.
Pay down credit cards so that none of them are more than a third used. Deal with unpaid debts and judgments. If you don't have credit, take out a credit card, use it for a few essentials, and pay it off every month.
3. Get your finances in order
Most real estate loan lenders will want to look at your checking account. They want to see responsible behavior. If you're getting a lot of overdraft fees, that won't look good.
The loan officer will also be able to see if you use the float time. In other words, do you spend money before you have it by writing checks to places that take a while to cash them?
If you do these types of things, stop. Get in a position where you earn and deposit money before you spend it. Ideally, your account should always have a cushion, and it shouldn't get negative.
4. Save money for a down payment
When you are willing to put your own money down, the lender will look at you more favorably. Spend some time saving for a down payment. Different loans require different down payments, but as a general rule of thumb, the more you have, the better.
Look into a real estate loan lending program near you for more information.
When I started my own company, I knew that I needed a little business capital and fast. In an effort to raise money, I worked with various lenders to discuss loans, financing, and special terms. Unfortunately, I quickly discovered that not every loan was created equally. Some loans had almost predatory terms like high interest rates and penalties, while others were completely fair. Fortunately, a business consultant of mine taught me about loans and financing, so that I could make better choices in the future. The information on this blog saved my business, and I know that it can help yours too.