Two little words — mortgage approval — can be enough to strike fear into the heart of even the most prepared homebuyer. If you don’t get approved for a mortgage, your dreams of owning a home seem to go up in smoke. While the approval process can seem intimidating, it doesn’t have to be. Getting prequalified for a loan before you the start the process of looking for a home can give you an idea of whether you’re likely to be approved for a loan and the size of the mortgage you’ll qualify for. If you’re worried about the mortgage approval process, there are a few things you can do to increase the chance that a lender will approve you.
Although you might not need a down payment of 20 percent for certain mortgage programs, the more you have saved up toward the purchase of your home, the better your chances of getting approved. With a bigger down payment, you’ll come across as less of a risk to the lender. If you’re not able to save up a significant amount yourself, keep in mind that some programs, including first time homebuyer loans, allow you to use money you’ve received as a gift toward the down payment on your home.
Focus on your credit and debt
The higher your credit score and the lower your debt, the greater your chances of being approved for a mortgage. Take a look at your credit report and score before you pay a visit to the lender. If your score is low, it might be worth your while to focus on fixing any issues with your credit before you start the process of looking for a home or applying for a loan.
How much debt you have also plays a big part in determining whether you’re approved for a mortgage or not. According to the Consumer Financial Protection Bureau, to get a qualified mortgage, your debt-to-income ratio needs to be less than 43 percent. If you have a considerable amount of debt, whether it’s credit card debt, student loans or a car loan, focus on paying it down before you start the mortgage process.
It pays to shop around when you’re in the market for a mortgage. Different lenders might have different requirements. Different mortgage programs also have different requirements. For example, your credit matters less if you are applying a first time homebuyer loan or for a Federal Housing Administration mortgage than it does if you are applying for a conventional, fixed-rate loan. Along with increasing the likelihood of your getting a mortgage, shopping around also lets you compare interest rates and fees, so you can get the best deal on your home loan possible.
Don’t let fear of a being turned down keep you from applying for a home loan. Remember, if you don’t succeed at first, you can always give it another try or find another lender or loan program.
Image source: Flickr