How to Improve Your Chances of Qualifying for a Mortgage
When Applying for a Mortgage, Bring Your A-Game
This is a great moment to buy a home. Rents are rising across the country, especially in desirable urban markets, and home prices are following suit. Simultaneously, we’re in what many experts are saying will be the tail-end of the longest sustained period of ridiculously affordable interest rates on record.
If you’re like many would-be homebuyers, then you’re probably eager to purchase a residence before rents (and home values) become too astronomical. Plus, you may be feeling the pressure of the impending rate hike that the Federal Reserve has been hinting at for many months.
But these days, lenders are pretty strict about whom they’ll grant financing to. Granted, lending criteria have loosened considerably since the height of the financial fallout that followed the subprime market crash, but they’re still far tighter than the Wild West-style lending that precipitated the trouble in the first place.
And generally speaking, that’s a good thing. We certainly don’t want a repeat of that mess. The policies that lenders are following these days are aimed at preventing that sort of thing from happening again.
But if you’re trying to qualify for a mortgage, you may be feeling a bit rejected. Lenders almost seem eager to reject mortgage borrowers these days. Not to worry; there are several steps you can take to improve your chances of getting approved to finance your dream home.
Know What You’re Working With
You already know that your credit rating has a lot to do with whether or not a lender will grant your mortgage application. But too many mortgage borrowers wait until the first meeting with a mortgage broker to find out where their credit rating stands.
Don’t make that mistake. You should know your credit rating (and the credit ratings of any potential co-buyers) long before you approach a lender.
Pay Down Your Debts
Your debt-to-income ratio is a big part of your credit rating – thirty percent, to be exact. So it’s a smart idea to pay your existing debt down as much as possible before applying for a mortgage loan. Ideally, lenders like to see less than 30% of your available revolving credit in use, and if you can pay it down even further, that’s all the better.
Dispute Any Reporting Errors
In examining your credit file, you may find reporting errors. Lenders are staffed by humans, and humans make mistakes. You may also find negative marks that are downright fraudulent. If you do find any reporting errors on your credit report, be sure to dispute them. Removing erroneous red flags can go a long way to boost your credibility in the eyes of a lender.
Pay Your Bills on Time
This is an obvious point, but it bears mentioning all the same. If you’re grooming your credit for a mortgage application, don’t even flirt with making payments late. If you have to forgo some creature comforts to make your payments on time, then do so.
Increase Your Income
You may be thinking, “Wouldn’t that be nice?” And yes, it’s easier said than done. But it’s not impossible. Consider taking on a side gig, asking for extra hours at work, or mustering the gumption to plead your case for that long-overdo raise. Earning more money will help you reduce your debt-to-income ratio, and may help you pay off your debts faster or…
Save for a Down Payment
Money talks; it’s an old chestnut because it’s true. There’s nothing that shows you mean business quite like walking into a potential lender’s office with a healthy down payment in your bank account. Again, this may seem unattainable if you’re already living on a tight budget, but take a close look at your budget – you may find more wiggle room than you thought you had, especially if you’re willing to live frugally.
Remember: lenders like a low loan-to-value ratio almost as much as they like a low debt-to-income ratio. There’s less risk in it for them.
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