Some people jump into home ownership because they hear about lower prices and declining interest rates. However, getting a mortgage is different than renting an apartment or getting an auto loan, and an applicant who doesn’t recognize the differences is usually disappointed when the application is denied. Here, potential homeowners can learn the best ways to get a mortgage approval.
Be Credit Wise
It only takes a few minutes to get a credit score, but it’s surprising how many buyers don’t do it before they apply for a mortgage. However, credit fraud and a low score can stop the application process before it even starts. Many lenders have a minimum score requirement of 680, and missed payments or other derogatory items can lead to application denial as well. Potential borrowers should pay bills on time, get rid of debt and stay up to date with their credit reports.
Keep a Stable Employment History
Staying at the same job during the home purchase process is important. Any employment or income changes can delay or even stop the approval process. Lenders make approval decisions based on the information in the application, and taking a low-paying job or becoming self-employed will cause the lender to re-evaluate the applicant’s finances.
Get Rid of Debt—and Don’t Create Any More
While it’s not necessary to have a credit balance of zero, owing less increases the chances of mortgage approval. Lenders evaluate applicants’ debt to income ratio before making a decision, and if the debt ratio is high, they may offer a smaller mortgage or none at all. It’s a good idea to ensure that monthly debt payments don’t exceed 35% of the borrower’s gross monthly income.
Obtaining mortgage pre-approval before starting the search for a new home is the responsible thing to do. It allows the borrower to know what they can spend, and they can avoid becoming excited about a house they can’t afford. Contact the lender, submit the requisite information and wait for their response.
If a borrower doesn’t meet a lender’s qualifications, they shouldn’t be discouraged. Rather, they should take the opportunity to improve their finances. It’s possible to overcome credit issues, foreclosure and bankruptcy to become a homeowner, but a person needs a doable plan. Consult Dustin Dimisa for more details.