Strengthening Your File Before Pre-Approval

[Matt Dickens]

What's up BP! 

Many people have asked me what they need to do to get approved for a loan. There are a bunch of ways to help prove yourself to a Lender, but staying healthy in these four categories will put you in the best position to get approved and ready to shop for your next deal. 

CREDIT: Banks lend to borrowers who show credibility. "Duh!" I know, but, sustaining good credit isn't as easy for some as it is for others. Open your first card as SOON as possible. Be careful not to open too many lines at once, especially before applying for a loan. Don't spend what you don't have. If you have multiple cards, be sure the report shows multiple zero balances. Use your credit card to buy and your debit card to pay - and pay your balances in full and on time! Missed payments are costly. 

DEBT-TO-INCOME: Banks lend to borrowers who show the ability to pay them back. In order to reflect this, you need to show about 3x income over expenses. Don't over-leverage yourself. Do whatever you can to get close to the 3/1 ratio and pay off as MUCH as you can before applying for a pre-approval. Before you overspend on installment loans, remember it will be used against you. Yes, deferred student loans are likely to be factored in as well. 

EMPLOYMENT: Unfortunately, lending guidelines influenced by the pandemic make the approval process harder for self-employed/hourly workers. It's not impossible for these individuals, but they are currently considered riskier borrowers in the eyes of the money-givers. If this is you, do your best to sustain consistent revenue/hourly wages - don't quit your job before applying! I totally get it, some of this is out of your control. BUT, use this as a reminder to make the extra effort to keep the revenue/income/hours consistent. You want to show banks that your business/job generates sufficient inflow to pay them back. 

ASSETS: You gotta show the doe! Your final cash-to-closing numbers will vary based on your loan product - I'd be here all day if I were to throw out savings goals per product, so I'll save you the pain. I will, however, note that if you plan on using gift funds, I highly suggest you let those funds "season" for 60 days before you apply so that the bank can perceive those funds as your own. Otherwise, they'll likely overlook them in your financial review. On a positive note, investment accounts count as reserves. Going by the book, we are instructed to have liquid assets available for reserves, and I agree, but keep this in your back (bigger) pocket for a potential scenario down the road. 

All in all, having solid positions in 3/4 of these categories will leave a great impression on your lenders. It's key to understand that keeping your file strong is just as important as finding profitable real estate. The latter isn't possible without the former, so be diligent!  

Discipline is not what you do to yourself, it's what you do for yourself.