If you're planning to buy a house, you're most likely thinking of applying for a mortgage as well. But trying to get approved for a home loan can be as stressful as buying the house itself. To help you with this, we've provided these 8 tips to help boost your chances of mortgage approval.
Before you go shopping for a house or applying for a mortgage, consider first how much home you can afford.
Examine your lifestyle and financial needs by reviewing at least a year of your records. This includes how much you spend on groceries, education, childcare, entertainment, or any other current expenses.
Additionally, take into account future expenses of buying and owning a home. Prepare for out-of-pocket expenses such as closing costs, home inspections, and downpayment. You also have to consider homeowner expenses such as monthly payments, utilities, and maintenance.
Be realistic about what you can spend now and in the future. There's nothing worse than buying into a home you can't afford.
A mortgage pre-approval is when a lender confirms your creditworthiness. The lenders will check your credit score, income and employment status, amount of your down payment, debt-to-income ratio, liabilities, and assets. They will then give you a set loan amount and interest rate.
Mortgage pre-approvals are usually valid for up to 90 days. This will give you enough time to look for a house within your price range based on the mortgage deal you have been offered.
Before applying for a mortgage, check your credit score and credit history. This will help you become aware of any errors and late payments, so you can correct them before the lenders get to see your report. Moreover, knowing your credit score beforehand will also give you more time to increase it if needed.
Ironically, paying off your debts may hurt your credit score. However, not settling them can also hurt you financially in the long run—not to mention it can be mentally stressful.
The best thing that you could do is to lessen your credit utilization to at least 30%. For example, if you have a credit card with a limit of $2000, your balance should be about $600.
If you have multiple credit accounts, you can consider consolidating them. Consolidating debts may cause a drop in your credit score. But as long as you make payments on time, your score would quickly improve.
Before applying for a mortgage, it's important to understand what you can afford, which program would suit you, and what are the needed requirements. A licensed mortgage broker can explain all this to you.
But that's not all! Hiring a mortgage broker can also make the home buying process easier.
At Ebenezer Mortgage Solutions, our professional mortgage broker will speak to various lenders and banks, so you don't have to. We will find deals and offers that would suit your situation and financial needs and, with our expertise, help you decide which one is best for you.
Lenders will avoid risky clients. Improve your credit reputation by maintaining stable employment and a steady cash flow. As much as possible, stick with your employer while you are applying for a mortgage. Moreover, avoid taking low-paying jobs or quitting to become self-employed.
It's easy to say, "I will minimize expenses," but we all know it takes much discipline to do it. Nonetheless, it needs to be done to reduce debt and increase your down payment.
You can start by tracking your spending and eliminating unnecessary expenses. This is why the first step in this list is to plan ahead, so you have enough time to change your spending habits.
Additionally, shift your mindset from getting that temporary gratification of buying what you want to the convenience and security of owning your new home.
Save as much as you can for the down payment. Yes, you can place a lower down payment, but putting a 20% down payment has its perks. With a 20% down, lenders are more likely to approve your application. You can also avoid paying for PMI, have a smaller loan, and enjoy lower monthly payments.