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Buying a home will most likely be one of the largest financial decisions you make in your lifetime. As you start your way through the mortgage process, you will want to be sure that you do as much as you can to improve your likelihood of qualifying for a mortgage.
Getting declined for a mortgage can be hurtful because it is such a huge step in the home buying process. In this post, we discuss tips to improve your chances of getting approved for a mortgage.
ANALYZE YOUR CREDIT REPORT
The first step to getting approved for a mortgage is to understand where you are with your credit. Credit is the number one factor in determining whether or not you will be approved for a mortgage, and can help you receive a lower interest rate on your loan. You should also check your FICO score, calculate your debt-to-income (DTI) ratio, calculate the potential payments for your loan, and work with your lender to decide which mortgage is right for you.
Related: Keeping Score on Your Credit
FIX ERRORS ON YOUR CREDIT REPORT IMMEDIATELY
Once you have analyzed your credit report, you need to take swift action to report and fix any issues you may have discovered. Contact your credit agency to fix any of the errors on your report. Here are some common errors that you should look for:
- False information like name/address, or the wrong social security number
- Information of a former spouse
- Out of date information
- Incorrect notations
Most experts recommend that you identify any errors on your credit report at least six months before you decide to shop for a loan. This allows an appropriate amount of time for any errors that you find to be fixed by your credit agency.
IMPROVE YOUR CREDIT SCORE
Improving your credit score is one of the best steps you can take to get approved for a mortgage. This requires making your payments on time, and in full. If you need a credit boost, start by financing something small like furniture or electronics and regularly make your payments. The higher your credit score, the more likely you are to be approved for a mortgage, and the better your rates will may be.
If you don’t have an open loan or credit card, open a new line so you can show a positive payment history for your mortgage approval. Even after you have been approved for a loan, continuing to improve your credit score allows you to refinance your mortgage for better terms.
AVOID LARGE PURCHASES
While you want to show a positive payment history, you should avoid acquiring too much debt before your mortgage application.
If you accrue a large debt before your loan application and don’t have the consistent income to back it up, it could seriously hurt your chances of getting approved for your mortgage. This can be especially true if it is a purchase that adds long term payments to your debt, like a car or a boat.
Make sure your mortgage is approved before you decide to make any new investments for your home.
THINK ABOUT YOUR DEBT-TO-INCOME RATIO
Your debt-to-income (DTI) ratio is one of the most important factors your lender will consider in your ability to qualify. This helps assess how you manage your monthly payments and repay any debts you may have. Put simply, your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income.
One way to help manage your DTI ratio is by maintaining a budget. Average out your spending on things like food, gas, and other everyday items that you will buy, and include the averages in your budget. Mapping out your income vs expenses is not only good to show a lender but is a useful tool to use to restrict and refine your spending.
Questions about getting approved for a mortgage? Reach out to one of our mortgage experts today!