If you’re in the market for a home, getting your mortgage approved is essential. Doing this allows you to begin looking at properties and making offers, while also showing sellers that you are serious about buying.
There are several steps you can take to get your mortgage approved, such as checking your credit and getting preapproved. Doing this will guarantee you’re prepared for the entire approval process and prevent delays that could cost you the home of your dreams.
Before You Begin Your Mortgage Application
Before beginning the mortgage application, order a free credit report from each major bureau and review it carefully. This will identify any derogatory items on your report such as recent late payments or collections that could negatively affect your score. If any errors appear, fix them immediately so they don’t affect the process of applying for a mortgage.
Once you’ve ordered and reviewed your credit report, go ahead and apply for preapproval with as many lenders as possible. Doing this will enable you to identify the most competitive rates and terms tailored for your individual situation.
Look for a lender willing to work with you on competitive terms. This may prove challenging if your credit history is poor or your debt load is unusually large, but an experienced mortgage broker can assist in finding the best lender and the most advantageous conditions.
Generally, you should search for lenders willing to loan up to 80% of your home’s value and recommend making at least a 20% down payment. This will provide you with enough money for both mortgage payments and negotiations with potential sellers.
Don’t Deplete Your Cash Reserves and Assets
It may be tempting to draw upon savings and other funds when searching for a home, but this should be avoided. Doing so could cause your mortgage loan underwriter to question why these withdrawals were made, potentially jeopardizing loan approval.
Pay Off Everything On Time
As a general guideline, pay your credit cards off in full each month and never charge more than 30% of the maximum amount you can borrow on any account. Not only will this save you on interest fees, but it will also help maintain a strong credit score.
Maintain a Low Debt-to-Income Ratio
Your debt-to-income ratio is the primary factor in determining whether you can repay a mortgage. This ratio assesses whether or not you can afford monthly payments on top of other monthly obligations as well as all necessary costs to live in the home.
If your debt-to-income ratio is too high, you could potentially be turned down for a mortgage or worse yet, the loan might even be denied altogether. Fortunately, some lenders offer programs designed to assist borrowers with low debt-to-income ratios such as the FHA mortgage program.
If your credit card has a high limit that has been reached, it may be beneficial to pay it off before applying for a mortgage. Doing this helps guarantee your loan approval and avoids any overlimit fees or additional charges from using the card.