| Most people understand
that the greater a person's income, and the better his credit history, the
more likely he is to get a loan, and the more money he will be able to get.
But lenders also look at factors other than credit history to decide how much
to lend and whether a person is a good credit risk.
Stability
Lenders like to see people who are
not only stable in their employment, but stable in where they keep their
residence. Most lenders will ask for a list of a loan applicant's residences
for the last two years. This list helps the lender verify that credit report
information drawn on the applicant is actually for the applicant and not just
someone else with the same name.
The list also gives an indication to
the lender whether the applicant may have a history of problems with neighbors
or landlords. An applicant who has changed residences several times in the
last two years may be a less-than-desirable credit risk, especially when other
factors on his application are marginal.
Of course, lenders also want to see
stable employment. Depending on the lender, it will be necessary to have had
the same employer for the last 12 to 24 months. Some lenders will allow a
shorter period if the person was continuously employed, and the change in
employment was part of a natural career progression or among jobs in the same
field.
Those with good income, but who have
recently had an unusual change in employment can often still get a loan.
However, they will need a co-applicant with a stable employment history to
buttress the loan application.
Assets
It's not enough to just come up with the
money to buy a home. Lenders want to know where the money came from.
Documenting that funds came from some legitimate source, such as investments
or savings, is important to making a lender feel confident in your strength as a
borrower.
Moreover, verifying that you have
assets not needed for the home purchase is important to boosting a lender's
confidence. These assets are looked upon as reserves that can be drawn upon in
times of trouble, such as unemployment, medical emergencies and similar occurrences.
Extra assets also help document a history of saving, further enhancing your
appearance as a dependable borrower.
Assets that can be used to enhance a
loan application are numerous, but generally are anything with substantial
value. Cash is the most common, and is easiest to document if it's in a bank
or credit union.
The larger the desired loan, the more important it is to provide details on personal
property, such as furniture, cars, boats, motorcycles and other items. Larger loans usually indicate larger incomes, and lenders
like to see that personal property seems to match income. If it doesn't, this
could be a warning to the reviewer of a loan application that he should take a
closer look at the applicant's documentation. (A lender will not normally ask
for verification of the value of personal property unless you intend to
sell it to raise a down payment.)
The many clients I've represented
over the years have used anything from collectible coins and boats to guns and
farm machinery as assets to show on their loan applications. Even livestock
and pets can be used, provided they have substantial value.
A lender has no interest in using
these assets as collateral for the loan. The lender's only interest in knowing
of these assets is to get a better overall picture of the applicant's
financial history, and his potential ability to raise cash in the event of an
unexpected financial emergency.
The quickest and easiest way to document money in a bank account is to provide
copies of recent statements. Most lenders request statements covering the most
recent two months, but some lenders ask to cover the most recent three months.
A few lenders also send deposit verifications to applicants' banks to verify
statement balances and average balances for the last few months.
Even ownership of a small amount of
stock can help a loan application when combined with ownership of other
investments or assets. Most people who own stock in a company get regular
statements from a broker, who holds the stock in "street name" for
the owner. People who possess actual stock certificates instead of having a
brokerage account can still use their stock ownership as an asset. They will
need, however, to make copies of the certificates for their loan officer, and
may need to supply tax records to show that the stocks have not been sold.
Investments other than stocks will
work also. Bonds, mutual funds, precious metals, U.S. Savings Bonds and other
assets are important to report on a loan application. Investments in retirement
accounts are important too. Remember, these assets will not be made collateral
for the loan. They are only "dressing" to make the loan application
look better.
Just as with cash, these other
investment assets will have to be verifiable. Be sure to save copies of recent
statements from investment managers or plan administrators. For Savings Bonds,
be prepared to provide photocopies of the bonds.
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