Isn’t it remarkable how in the Mission Impossible movies, the mission is almost always possible? Even when the odds are stacked against them, Ethan Hunt, senior field agent for the Impossible Mission Force, and his team always manage to find a way to succeed.
Homeownership can sometimes feel like an impossible mission, too. But just like Hunt and his crew, you can achieve your goal with hard work and dedication, and the right people by your side.
Rest assured, no dangerous stunts are required for this mission, but you will have to master the “CIA”. No, not the Central Intelligence Agency, but rather your credit, income and assets. No worries, though. As a loan officer and a determined member of the homeownership team, I am here to share strategies and guidance to help you accomplish your mission!
Your credit score, or FICO score, is like the secret code that unlocks the door to your financial world.
Lenders use your credit score to assess your credit risk, so taking care of it is a must. This three-digit number, typically ranging from 300 to 850, serves as a quick snapshot of your credit risk. It’s calculated based on various factors, including your payment history, credit utilization and the length of your credit history.
While a “perfect” credit score isn’t necessary, aiming for a FICO score in the “good” to “excellent” range can greatly enhance your ability to secure a mortgage with favorable terms.
Start by obtaining a copy of your credit report and meticulously inspecting it for any errors. If you uncover inaccuracies, be sure to address them promptly.
Now, let’s explore the essential steps for maintaining a healthy credit score:
1. Pay your bills on time, every time.
Late payments are one of the biggest factors that can hurt your credit score. Even one late payment can stay on your credit report for seven years, so it’s important to set up automatic payments or reminders to ensure you never miss a due date.
2. Keep your credit card balances low.
Your credit utilization rate is the amount of credit you’re using compared to the total amount of credit you have available. Lenders like to see a low credit utilization rate, typically below 30 percent. If you have high credit card balances, work on paying them down.
3. Maintain a “credit mix”.
Ensure you have a well-balanced assortment of credit. Diversifying the types of credit accounts on your credit report demonstrates a broader capacity for handling your financial obligations. For instance, having a credit card, an auto loan, a student loan and a mortgage can be more advantageous than relying solely on credit cards.
4. Avoid opening new lines of credit or taking on new debts before you apply for a mortgage.
Every time you apply for a new line of credit, a hard inquiry is placed on your credit report. Hard inquiries can temporarily lower your credit score by a few points. If you’re planning to apply for a mortgage soon, it’s best to avoid opening any new accounts or taking on any new debts.
Your income is like the critical intelligence for your mission. Lenders require assurance that you have a stable and adequate income to fulfill your mortgage obligations.
To bolster your income profile:
1. Maintain a steady job history and avoid frequent job changes.
At least 12 months on the same job may be necessary, and in some cases even longer, especially if you work for a family member, are seasonally employed or are self-employed.
2. Provide all necessary income documentation to your lender.
This includes pay stubs, tax returns, and annuity and social security statements. These serve as evidence of your financial stability.
3. If you’re self-employed, be prepared to show consistent and reliable income over time.
If you’ve been self-employed for less than five years, you may have to provide two full years of tax returns.
Your assets are the financial tools in your arsenal.
Among these, the most crucial asset for securing a home loan is your down payment. The size of your down payment wields the power to influence the interest rate and terms of your mortgage.
To secure your assets for a home loan:
1. Save diligently for a down payment.
By saving consistently and working toward a down payment, you’ll gain several advantages.
A larger down payment demonstrates your financial commitment to the property purchase, reducing the lender’s risk and potentially leading to more favorable mortgage terms. Additionally, a larger down payment can lower your monthly mortgage payments and may eliminate the need for private mortgage insurance (PMI). PMI is a type of insurance that lenders often require for borrowers who make a down payment of less than 20% of the home’s purchase price. Avoiding PMI can save you a significant amount of money over the life of your mortgage.
2. Be prepared to disclose all of your assets and sources of funds to your lender.
Your lender will want a clear understanding of your financial situation to assess your eligibility for a home loan. This includes disclosing any savings accounts, investments or other assets that contribute to your financial stability. By providing a comprehensive picture of your financial resources, you increase your chances of a successful home loan application.
Now that you’ve strategized your own “CIA” (credit, income and assets), it’s time to spring into action. When you apply for a home loan, your lender will closely examine your credit, income and assets to determine your eligibility. A robust “CIA” profile will greatly enhance your chances of obtaining approval and securing a mortgage rate that suits your financial goals.
Remember that different loan programs and lenders may have varying requirements, so it’s essential to inquire and ask questions to find the right fit for your specific situation.
By taking the reins of your credit, providing a steady income, and securing a down payment, you’re arming yourself with the tools for a successful mission.
And, you don’t have to go at it alone — consider including a local lender and bank as valuable members of your support team. A local lender can provide vital insights on what you need to apply for a mortgage and a local bank can help you budget and save effectively.
Don’t hesitate. If you have any questions, please reach out. Our team of experienced mortgage loan officers would love to be on your mission team. Together, we can launch your “CIA” strategy and transform your homeownership dreams into a thrilling reality!
Liz Littell is a mortgage loan officer with Bank of Utah. A native of Cache Valley, she currently lives and works in St. George. With a wealth of expertise in both real estate and mortgage lending, she takes pride in guiding her clients through a seamless financing process.