Mortgage Approval Tips
Are you looking to buy a home but struggling to get your mortgage application approved? It can be frustrating to spend hours filling out paperwork, only to be denied. The good news is, there are things you can do to increase your chances of approval. In this article, we’ll share tips and tricks to help you master the art of mortgage approval.
Table of Contents
- Understanding Mortgage Approval
- Improving Your Credit Score
- Saving for a Down Payment
- Reducing Debt-to-Income Ratio
- Choosing the Right Mortgage Lender
- Gathering the Right Documents
- Avoiding Mistakes
Understanding Mortgage Approval
Before we dive into tips and tricks, it’s important to understand how mortgage approval works. When you apply for a mortgage, the lender will review your credit score, debt-to-income ratio, employment history, and other financial factors to determine whether or not you are a good candidate for a loan.
The lender wants to ensure that you have a good track record of paying bills on time, that you have enough income to cover the monthly mortgage payments, and that you aren’t overloaded with debt. If you meet these requirements, you are more likely to be approved for a mortgage.
Improving Your Credit Score
Your credit score is one of the most important factors that lenders consider when reviewing your mortgage application. A good credit score demonstrates that you are responsible with credit and that you are more likely to make your mortgage payments on time. Here are some tips for improving your credit score:
- Check your credit report: You can get a free credit report once a year from each of the three credit reporting agencies (Equifax, Experian, and TransUnion). Review your report carefully and dispute any errors you find.
- Pay your bills on time: Late payments can have a significant negative impact on your credit score. Make sure you pay all of your bills on time, including credit cards, car loans, and student loans.
- Keep your credit card balances low: High credit card balances can hurt your credit score. Aim to keep your balances below 30% of your credit limit.
- Don’t open new credit accounts: Every time you apply for credit, it can have a negative impact on your credit score. Avoid opening new credit accounts unless you absolutely need to.
Saving for a Down Payment
Another important factor that lenders consider is your down payment. A down payment is the amount of money you pay upfront when you buy a home. The more money you put down, the less money you will need to borrow, and the lower your monthly mortgage payments will be. Here are some tips for saving for a down payment:
- Create a budget: Review your income and expenses and create a budget that includes a monthly savings goal.
- Open a separate savings account: Open a separate savings account specifically for your down payment. This will make it easier to track your progress and avoid dipping into the money for other expenses.
- Cut back on expenses: Look for ways to cut back on your expenses, such as eating out less, canceling subscriptions you don’t use, and shopping for deals on groceries and other necessities. Consider getting a side hustle: If you have extra time and energy, consider taking on a part-time job or gig to earn extra money for your down payment.
Reducing Debt-to-Income Ratio
Your debt-to-income ratio is another factor that lenders consider when reviewing your mortgage application. This ratio compares your monthly debt payments to your monthly income. If your debt-to-income ratio is too high, it can indicate that you may have trouble making your mortgage payments. Here is how you can decrease your debt-to-income ratio:
- Pay down debt: Focus on paying down your debts, starting with the ones with the highest interest rates.
- Avoid new debt: Avoid taking on new debt, such as a car loan or credit card, until after you have been approved for your mortgage.
- Increase your income: Look for ways to increase your income, such as negotiating a raise, taking on a side hustle, or applying for higher-paying jobs.
Choosing the Right Mortgage Lender
Choosing the right mortgage lender can make a big difference in your chances of getting approved. Here are some tips for finding the right lender:
- Shop around: Don’t settle for the first lender you come across. Shop around and compare rates and terms from several different lenders.
- Check reviews: Look for online reviews of the lenders you are considering. Pay attention to both positive and negative reviews.
- Ask questions: Don’t be afraid to ask questions about the lender’s requirements, rates, fees, and policies.
Gathering the Right Documents
When you apply for a mortgage, you will need to provide a lot of documentation to the lender. Here are some of the documents you may need to gather:
- Tax returns: You will likely need to provide copies of your tax returns from the past two years.
- Pay stubs: You will need to provide copies of your most recent pay stubs.
- Bank statements: You will need to provide copies of your most recent bank statements.
- Proof of employment: You may need to provide proof of your current employment, such as a letter from your employer.
Avoiding Common Mistakes
Let’s take a look at the most common mistakes you should avoid doing during the mortgage application process. These include:
- Changing jobs: Lenders prefer borrowers who have stable employment and income. If you change jobs during the mortgage application process, it can raise red flags for lenders and make it harder to get approved. Lenders typically want to see at least two years of stable employment history, so it’s best to wait until after your mortgage has been approved to make any major career changes.
- Making big purchases: Making big purchases, such as a new car or furniture, can increase your debt-to-income ratio and make it harder to get approved for a mortgage. Lenders want to see that you have enough income to cover your monthly mortgage payments and other debts, so it’s best to avoid making big purchases until after you have been approved for your mortgage.
- Co-signing for loans: Co-signing for loans for family or friends can increase your debt-to-income ratio and hurt your credit score. If the borrower defaults on the loan, you may be held responsible for repaying it. This can make it harder to get approved for a mortgage, as lenders will consider the co-signed loan as part of your overall debt load.
- Hiding information: Being honest and upfront with your lender about your financial situation is critical. If you hide information or provide false information, it can hurt your chances of getting approved for a mortgage. Lenders will verify your income, employment history, and other financial information, so it’s important to be truthful and accurate when filling out your mortgage application.
- Applying for new credit cards or loans: Every time you apply for credit, it can have a negative impact on your credit score. Avoid applying for new credit cards or loans until after you have been approved for your mortgage.
- Closing credit accounts: Closing credit accounts can also hurt your credit score, as it can decrease your available credit and increase your debt-to-credit ratio. Avoid closing credit accounts until after you have been approved for your mortgage.
- Making large cash deposits: Lenders will scrutinize any large cash deposits into your bank accounts during the mortgage application process. If you have any large deposits, be prepared to explain where the money came from and provide documentation to support your explanation.
A Final Word On Mortgage Approval Tips
Getting approved for a home loan can be a daunting task, but by following these mortgage approval tips and tricks, you can increase your chances of success. With a little patience and perseverance, you’ll be on your way to becoming a homeowner in no time.