When shopping for loans for building a new home there are many factors that can derail your process. It is best to know about these and resolve them before you start. Getting a loan is very easy if you are prepared and nearly impossible if you aren’t. Let’s go over a couple tips to help the process go smooth.
Loans for Building a New Home Tip One: Your credit score and beyond
The bank will thoroughly check your credit history but they will go beyond that. They will check your work record, how prompt you are with your monthly utility bills, and they will look for unpaid debt anywhere they can find it. Further they will consider all your payments, your car payments, the balance on your credit cards, and even unpaid medical bills. Your life will be an open book to them simply because they need to see how likely you are to pay your mortgage payments on time.
Loans for Building a New Home Tip Two: Clean up your record before you go to the bank
It is vital that you remove any road block to your loan, months or even years before applying for a loan. You want to make sure that you appear responsible, and from the bank’s point of view, responsible people pay their bills promptly. They do not carry a large balance on their credit cards, and they pay all their debts. In addition the bank will consider what you already owe, and subtract your monthly credit payments of all kinds from one third of your monthly income in order to determine what you can afford. Your house payment plus your other monthly credit payments cannot exceed one third of your income. Therefore if you have a car payment, it is wise to pay it off before applying for a home loan. Pay off your credit cards. Improve your credit score as much as possible, and pay your small debts.
Reasons People Get Turned Down for Home Loans
• Recently started a new job (in order to get a loan, you must have worked at the same place for one year)
• Poor work record (frequent job changes and long periods of unemployment)
• There is a discrepancy between the income amount on your tax return, and the amount you reported to them as income. (This is a huge problem for self-employed people who have to consider gross, net, and various tax deduction expenses. Most self-employed people find it difficult to define exactly what their income is because it varies. It is best just to give the bank a copy of your tax returns from last year.)
• Car payments too high
• Balance on the credit card
• Poor Credit Score
• Unpaid medical bills
• A history of getting behind on your payments and bills
• No Credit history (but no credit history is more acceptable than a poor credit history)
• Low income or not enough savings
• Lying on any part of your credit application (They can find out)
• Lack of citizenship even if you have a Visa, but there may be programs to help (research on line for home loan programs for Visa holders)
It is vitally important that you clean up these kinds of situations before you go to the bank. Applying for loans is costly and time consuming. It can also be embarrassing to be turned down. Make sure you are prepared and have taken care of any problems before you apply.
Let’s do a quick recap…
1. The bank will thoroughly check your credit score.
2. They will also check your work record, how prompt you are with your monthly utility bills, and they will look for unpaid debt anywhere they can find it.
3. All of your payments including your car payments, the balance on your credit cards, and even unpaid medical bills will be considered.
4. Clean up your credit record months or even years before applying for a loan.
5. Understand the common reasons people get turned down for home loans and put yourself in the best situation to avoid these.
6. Get as educated as you can on loans for building a new home, including learning about construction loans, by downloading the free New Home Steps Guide above and become smart on home building from start to finish.
Good luck in getting a loan to build your new home. Let me know if you have any questions.