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How to Improve Your Mortgage Approval Chances
Mortgage lenders look at several different factors when they're deciding whether to give you a loan. You can work on these things
before you ever fill out a mortgage application and improve your chances at getting approved.
How Much Debt Do You Have?
Having too much debt is a sure way to have your mortgage application denied. If you're already overextended with debt payments, you'll have trouble making your mortgage payment and risk defaulting.
Calculate your debt-to-income ratio to see where your debt stands. Add up all your monthly non-mortgage debt payments and divide them into your total monthly income. Multiply the result by 100 to get a percentage. That number is your debt to income ratio. Ideally, that number should be lower 28%. If it's higher, work on paying off some debt before you apply for a mortgage.
Stay Away From New Debt
Avoid taking on any additional debt, including large credit card purchases, in the six months before your mortgage application.
Pay off Past-Due Accounts
It's nearly impossible to find a lender who'll give you a loan if you have outstanding debts. You'll have to pay off any past-due accounts including charge-offs, collection accounts, and judgments. A recent copy of your credit report will have information about any past-due accounts you have. You can order a free copy of your report fromwww.annualcreditreport.com. Or, if you've already obtained your free credit reports for this year, you can order one through Money Now! USA or any of the three credit bureaus.
Clean Up Credit Report Errors
Once you have copies of your credit reports (one from each bureau - Equifax, Experian, and TransUnion), review them to make sure there are no errors. Even what you think is a minor error can lead to your application being denied. Your credit report will include instructions for disputing inaccurate information from your credit report. The dispute process could take 30-90 days, so do it well in advance of your mortgage application.
Save a Higher Down Payment
The more you're able to put down on your home purchase, the less you'll have to borrow and the better your chances at getting approved for a mortgage. A higher down payment also means you'll have lower monthly mortgage payments, making it easier for you to pay all your monthly expenses and continue to meet your other financial goals. Some lenders have minimum down payment requirements. If you have some lenders in mind, find out their requirements as you begin to save up your down payment.
Get Preapproved
If you're serious about taking out a mortgage, getting preapproved can give you an idea of the amount of mortgage you'll get approved for. Preapproval is better than prequalification because there's more guarantee of getting your final loan application approved. Neither is guaranteed, though, so don't take for granted that you'll get the loan.
Prepare Early
You should start preparing your finances for a mortgage application as soon as you know you're going to be shopping around for a loan. The sooner you start, the sooner you'll be ready for a mortgage approval letter.
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