When purchasing a home, it’s essential to know how to increase your chances of approval for a mortgage loan. While several factors can impact this outcome, certain steps can help boost those prospects while decreasing the amount of money you must spend.
Your credit score plays a significant role in determining your mortgage approval and interest rate. A high credit score shows lenders you’re reliable, capable of repaying the loan on schedule. On the other hand, having poor credit–such as late payments or bankruptcy–can hurt your chances for getting approved for a loan.
A Credit Score is the total of all the credit information reported about you by all three major bureaus – Equifax, Experian and TransUnion – that makes up your credit record. You can check your score free once a year through one of these reporting agencies.
You can request your credit report from each bureau once a year, giving you more frequent access to it than when applying for a mortgage. By paying down debt, setting up automated payment reminders, and decreasing credit-card balances, you can improve your credit score and boost the likelihood of approval for a home loan.
Most lenders require you to have a debt-to-income ratio of 36% or lower. Lenders want to ensure you’re making enough money each month to cover all minimum monthly debt payments, including your mortgage payment and any other large obligations you may have.
Your debt-to-income ratio may be high, indicating you need to address existing obligations such as car loans and student loan debt. You can do this by consolidating your loans through a debt consolidation loan or by paying off some of your credit card debt.
Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate in San Francisco, California recommends that you avoid making large purchases with credit cards in the year or so before applying for a mortgage. Doing this can save you a considerable amount of money so be sure to plan accordingly!
Jon Meyer, a loan expert and licensed MLO (mortgage loan officer), suggests that those planning to make down payments of at least 20% could qualify for a higher mortgage amount. This is because you will avoid private mortgage insurance (PMI), which adds an extra fee onto your monthly payments.
Co-Borrowing with Others
If you have a partner who makes more than you, they could potentially help you qualify for a larger loan by sharing their income. This is especially true if both of you have good credit scores and steady sources of income.