As a possible borrower you need to first ask yourself whether or not you believe you can afford making a payment? Let’s face it, if you don’t believe you can repay those lending you money neither will they. Start by making a list of all of your debts, in other words who do you currently pay money to each and every month. Add each of those debts together and divide by how much money you have coming into your household each and every month. Depending on what type of loan you are looking to acquire lenders will be looking anywhere from 38-50% or less. Let’s face it, if you have more than half of your income being spent each and every month on non-necessities you are probably playing with too much of your income and the lenders may deny your loan whether you want the money or not.
Make sure that your credit score(s) are where they “should” be. You credit score is the primary consideration when a lender is making a decision on what interest you deserve from them. Though most lenders vary slightly from one another anyhow, no matter what lender you are looking to get a loan from it will be more beneficial for you to have a higher credit score. Though the national average for credit score is in the high “600’s” this does not mean you will automatically get the loan nor does it mean you will receive the top tier rates and terms. There are many websites and services that offer the ability to find your credit score. Be careful, as many of them have “hidden” fees associated with this service. Some in fact will begin to charge you a monthly fee, which if defaulted on can potentially hurt your credit. So again, be careful when looking for your credit score. Your best bet is to ask the lender what they have pulled for your credit score(s) and what tier or level of credit you fall into. While looking at why your credit score is what it is you may begin to feel rather overwhelmed, don’t worry you are not alone in this. In my experience there are very few people that can simply sit down and know exactly what is going on in someone’s credit report, let alone what or how to raise your score. If this is you, simply ask the individual helping you get the loan to sit and explain your credit report, if they cannot do that go find someone else who can and do your loan with them. Also, keep in mind that there may be some things you can do to raise your credit score(s), though most would be long term lifestyle things like keeping you debts low and ALWAYS paying your bills on time for the whole term of your loans, others can be relatively quick and simple. One of the tricks I learned along the way is as simple as gaining higher credit limits from your current lenders, i.e. credit cards. I know the dreaded credit cards! Okay, it is very simple if you are afraid of credit cards, don’t run high debts on them, but keep high limits. For credit scores it is not necessarily a bad thing to owe money on revolving debts like credit cards. Though it is bad to run high balances, come close or over your credit limits, or not pay them on time. Any of these and you may simply be begging for your score(s) to drop. And if you’ve been paying attention, this will potentially affect each and every other loan you will be looking to acquire in the future.
Okay, now to the “good stuff”. As I noted earlier, lending criteria may be looked upon differently depending on what type of loan you are looking to secure. If you are looking for a real estate loan make sure to ask either the banker or broker about whether they will be charging points or yield spread to help you put your loan together. Both points and yield spread are a way for bankers and mortgage brokers to make money on the loan to you. Your goal is to save yourself money by letting them know that you have an understanding of the process and how they potentially will be making money off of you and your loan. By adding points or yield spread to your loan your interest rate that you “deserve” to get from the lending institution is being raised. Remember, you will be paying this “extra” rate increase over the entire life of your loan. The longer the term of your loan the longer you will be paying this added rate, if you can get it out of the lender if they will be raising the rate “to cover the costs” of the loan process make sure to calculate the before and after of this rate increase and determine if it is worth it to you to continue having this individual helping you with this loan. Keep in mind, they are in business as well and often times it may be cheaper and/or more acceptable to you to have these costs built into the rate over the life of the loan then it is to come up with it all at closing time.
If you are looking to get a consumer loan, i.e. an auto loan, recreational, or an unsecured loan you first need to get a rough idea of the amount you are looking to borrow and compare to that of which you are already owing others each month. Also compare this to what the purchase blue books at. You can check the book value at either N.A.D.A. or Kelly Blue Book. I do not want you to think it is the right thing to lie on a credit application about your income; in fact it may very likely be illegal in some way shape or form. Though I do want to emphasize that the lower you debts in relation to your income the more likely it is you will be getting favorable rates and terms. Simply, the lower your debt to income ratio the better off you will be. On this same note, keep in mind if the lender suspects you are falsely stating your income don’t be surprised if they suddenly are asking for income verification, which means you may need to bring them one or more of your most current pay stubs. If you have been lying about your income you may end up killing your “deal” before you even begin.
Above anything else, if you know that you have a few “bumps” in your credit make sure to explain the reason(s) why they occurred and what you have done to make sure it won’t happen again. Though this isn’t a guarantee a loan will be given it may help your case if a lender is sitting on the fence on making a favorable decision. Throw in a story and killing the lender with kindness and you may be able to squirm your way into a loan you may not have officially met the criteria for. If you are a top tier borrower anyway remember that lenders are in competition with each other and it may be possible to work one lenders’ rates and terms against another to ensure you are ultimately receiving the absolute best scenario for yourself and your situation.