Getting approved for a mortgage requires careful financial preparation and diligence. This guide provides tips on steps you can take to maximize your odds of successfully qualifying and getting approved when applying for a home loan.
Increase your credit score: To get the best mortgage rates and approval odds, aim for a credit score over 720. Pay down debts, dispute errors on your report, and maintain low credit card balances.
Lower your debt-to-income ratio: Lenders like to see your total monthly debt payments at or below 36% of your gross income. Pay off loans and consolidate debt to optimize this ratio.
Save for a down payment: Having 20% or more for a down payment qualifies you for the best mortgage terms and removes the need for private mortgage insurance (PMI).
Gather documents and records: Have 2 years of tax returns, W-2s, recent pay stubs, and bank statements ready to support your loan application and demonstrate financial responsibility.
Establish longer job tenure: Lenders favor 2+ years of continuous employment in the same field. Avoid changing jobs multiple times in the 12 months preceding your application.
Settle collections: Pay off any collections or judgements which can negatively impact mortgage eligibility and interest rates. Remove late payments from your credit report.
Avoid new credit inquiries: Limit new credit applications in the 6 months prior to your mortgage application, as too many “hard” inquiries can temporarily lower your credit score.
FAQs:
Q: What credit score is considered “good” for approval?
A: Scores above 720 get the top rates, but 660+ can still qualify. Below 620 makes approval very difficult.
Q: How can I determine my debt-to-income ratio?
A: Add up all your monthly debt payments including housing, credit cards, loans, alimony etc., and divide by your gross monthly income.
Q: Is a bigger down payment always better?
A: Yes, 20% down avoids PMI and can qualify you for better rates. However, several loan options allow down payments as low as 3%.
Q: How far in advance should I apply for pre-approval?
A: 1-2 months lets you improve your credit, pay down debts, collect needed documents, and appeal any initial denial.
With proper preparation and diligence, home buyers can set themselves up for the highest likelihood of smoothly getting approved.