Are You a High-Risk Borrower? Answer These Questions
Are you thinking about buying a Denver home, but not sure if you will even be able to obtain financing? Well, before you waste a lot of valuable time even looking it’s a good idea to get pre-approved. Of course, before you even apply, you should have all the documents you need and know exactly what’s on your credit. Find out below if you are a high-risk borrower before buying your next home.
What’s Your Credit Score?
To not be considered a risky borrower, you should have a credit score of at least 620. Factors that affect your credit score include payment history, amount owed, length of credit history, new credit, and types of credit in use. You may be surprised to learn what things don’t affect your credit score, such as liens, charge-offs, and collections.
What’s On Your Credit?
Credit score is not the only thing you need to know. The lender is going to completely read through your credit report. So, it is very important that you run a report at least three months before you apply. This will give you time to dispute any errors. Expect to be asked about every blemish.
How Long Have You Been at Your Job?
Lenders are very interested in your employment stability. If you just switched jobs, but you stayed in the same industry this still shows stability. If you have a tendency to quit every time you disagree with your boss or have periods of time where you are unemployed, a lender won’t be too eager to help.
Can You Prove Your Income?
Unfortunately, you can’t just tell a lender how much money you make and expect them to believe you. Check stubs will work for most people. If you are self-employed then supply tax returns, bank statements, and escrow transfers, if applicable.
How Much Are You Putting Down?
A lender may have a hard time taking you seriously, if you don’t have much money to put down. Ideally, you will have at least 20% down, especially if you have any other red flags. If you are trying to get approved with less than 20% down and you have a low credit score, you may be out of luck until you can save more money and/or improve your credit.
Buying a Denver home can be a long, drawn-out process. Even if you already have your dream house selected the process of getting approved, having the home appraised and making it through closing is not going to happen overnight. Before you do anything, make sure that your credit and finances are in good order.