Three Simple Money Habits to Guarantee Loan Approval
Getting approved for a loan, especially a mortgage, can be a complex and sometimes daunting process. Lenders assess various factors to determine your eligibility, and maintaining good financial habits can significantly improve your chances. Here are three crucial habits to adopt to ensure you're always ready for loan approval.
1. Focus on On-Time Payments
While having a high credit score is beneficial, the cornerstone of maintaining good credit is consistently making on-time payments. Late payments can severely impact your credit score and your overall creditworthiness. When a lender reviews your loan application, they closely examine your payment history to assess your reliability.
To stay on track:
Set up automatic payments: This ensures you never miss a due date.
Use payment reminders: Many financial apps offer tracking and reminders for spending and upcoming payments . Check out YNAB, Goodbudget, EveryDollar, Empower Personal Wealth, HoneyDue, PocketGuard
Monitor your accounts regularly: Keep an eye on your balances and due dates to avoid any surprises.
Additionally, it's crucial to manage your credit limits wisely. Keeping your credit utilization low (below 30% of your total credit limit) demonstrates to lenders that you can responsibly manage your debt, further boosting your creditworthiness.
2. Stay Organized with Your Income Records
Keeping your income records well-organized is vital, especially when you're applying for a mortgage. For salaried employees, this is relatively straightforward with pay stubs and W-2 forms. However, if you're a freelancer or self-employed, maintaining detailed and accurate records becomes even more critical.
Here’s how to manage it effectively:
Track all income sources: Use accounting software or spreadsheets to record all your earnings.
Keep copies of invoices and payment receipts: These documents can serve as proof of income.
File taxes meticulously: Ensure your tax returns accurately reflect your income, even with write-offs.
For freelancers, gross deposits can sometimes be used to demonstrate income, bypassing the need for net income proof that includes numerous write-offs. Explore programs that cater to such scenarios to improve your chances of loan approval.
3. Be Careful with Large Deposits
When applying for a mortgage, it's important to be mindful of large deposits into your bank account. Underwriters are required to source any significant deposits, typically those that exceed 50% of your monthly qualifying income. These regulations are in place to prevent fraud and ensure that the funds are legitimate.
To avoid complications:
Document the source of large deposits: If you receive a large sum, such as a gift or a payment, keep a record of its source and provide an explanation.
Avoid unnecessary large transactions: If possible, delay large deposits until after your loan has been approved.
Communicate with your lender: Proactively inform your lender about any large deposits and provide the necessary documentation upfront.
By adhering to these practices, you’ll present yourself as a reliable and well-prepared borrower. Not only will this streamline your loan approval process, but it will also help you maintain a healthy financial profile in the long run. Being proactive with your financial habits ensures you are always ready when the opportunity or need for a loan arises.