Credit Preparation


Savings and Cash on Hand

Prepare for your home purchase by making sure your down payment and additional savings are available in your bank accounts at least two months before buying a home. A lender typically looks at your prior two or three months of bank statements. Any funds that have been in your account for less than two months are investigated by the lenders to verify the source and to make sure you have enough cash to complete the transaction. If there are large deposits and withdraws the lender may ask for extra paperwork to verify the funds. These additional steps may draw out the process of getting your loan and may cause headaches that could have easily been avoided.

 

If you have multiple accounts at different banks, there is no need to transfer or consolidate funds. The money movement can cause confusion and add additional processing time. Submitting multiple bank statements with consistent balances and activities can cause less confusion then submitting a single bank statement with large and infrequent deposits.

 

Documents to prepare include two to three months of bank statements, investment account information from your financial advisor or brokerage, and any other savings documentation.


Job History

Lenders are interested in a consistent job history with long-term and stable employment. Two-years of employment history with the same employer or industry are the minimum requirement for most lenders. If you are considering a job or industry change and are preparing to buy a home, stay with your current position for as long as possible. This commitment builds up your employment history which is important to lenders.

 

Self-employed buyers or those who are mainly paid by commissions or bonuses need to show a consistent income history. Lenders normally review two years of tax returns to verify that your income is consistent and that you are qualified for the amount of money they are lending you.

Prepare and review essential documents like pay stubs, W-2 forms, tax returns.


Large Purchases and New Accounts

Your Credit score is a reflection of your credit related accounts and payment history on these accounts. Many different factors affect your credit score including how much debt you have, how much credit you already have available, your payment history (on-time, late, delinquent) and other financial related activities. The best thing you can do to improve and maintain your credit score is to consistently make payments on time toward the debt you have.

When preparing for a home purchase, avoid increasing your debt or opening new credit accounts. These activities affect your credit score and the loan amount you qualify for. Lenders use your existing debt as part of their evaluation on how much money will be loaned to you. Avoid large purchases and debt on your credit card and other revolving accounts. Even if credit card accounts are paid off completely with each statement, credit reports don't always reflect this since payments and new charges are posted to the accounts and credit bureaus at different times. If you have a $10,000 balance on your credit card for the month and you pay it off, the $10,000 balance will likely still show up on your credit report which affects your credit score and amount of debt attached to you. To prepare for your home purchase avoid large purchases using credit like a car, electronics, or any item that increases your recorded debt. The last thing you want is to fail to qualify for the loan amount needed because you bought a car or large item that could have been purchased at a later time.