So you are ready to buy a home of your own. Great! If you want your mortgage approval process to go smoothly, you would be well served to follow these simple tips below. That way, you can be confident that your home loan application will be approved in a matter of days or a couple of weeks at most. There are several important steps to take when seeking a home loan approval from competitive banks and mortgage brokers.
#1 Fix Up Your Credit
We know – this seems mind blowingly obvious, but you would be astounded at how many people start shopping for homes and mortgages without a clue about their credit score.
At least six months before you plan to get a home loan, you should review your credit report. Do not assume that if you had late payments in the last year or two that they will be forgotten. If the creditor has your social security number and you paid them more than 30 days late, there is a good chance you have a black mark on your credit report. The good news is that black marks on your credit report carry less weight after a year or so passes. So, well before you get a mortgage loan, make certain that you are paying all of your bills and credit cards on time. That way, even if you have a black mark or two on your report from a year ago, the lender will assign less weight to it.
#2 Pay Down Debt
If you have your credit cards maxed out, it is not impossible to get a mortgage, but it is going to slow things down. Look at it from the lender's perspective: If you have your credit cards maxed out and little in savings, what is going to happen if a financial problem hits? What if the house suddenly needs a new roof? Will you be able to make your mortgage payments?
So, a good year before you want to get a mortgage, you should try to get your credit card balances down as much as you can.
#3 Get Stable
Lenders are less likely to extend loans to people who look financially unstable. You need to show on paper that you have a steady, reliable income and a reasonable amount of debt. One way to look stable financially is to stay in the same job or at least the same field for many years. It is not a good idea to switch jobs or quit during the mortgage approval process. If you are self-employed, that is fine, but you want to show that you have been profitable for at least the last two tax years. You do not need to have zero balances on your credit cards, but if your balances are 50% of your limit or more, you want to pay those down. You want to show the lender that you are responsible and stable. Generally, avoid major new purchases as you are shopping for a loan. So no new cars or expensive trips funded by a credit card until AFTER you move into the house.
#4 Run Financial Scenarios on a Mortgage Calculator
There are plenty of great online mortgage calculators that will show you if your finances can handle the proposed mortgage payment. You also want to have plenty of reserves because owning a home always costs you more every year than just your mortgage payment. Repairs are inevitable.
#5 Increase Your Savings
You do not have to have a 20% down payment to get a mortgage these days, but you do not want to have zero in your savings account either.
You may be able to get a mortgage loan with as little as 3.5% down, but you also will need to have at least 2-3% of the sales price of the home for closing costs. Lenders also want to see a few months of mortgage payments in reserve too. The general idea is that you want to show you can still pay your mortgage for a while if a financial crisis hits.
#6 Have All of Your Documents in Order
When you are asking a bank to loan you several hundred thousand dollars, this is a big decision for them as well as for you. The lender is going to want to see a lot of financial information from you, including W-2s, pay stubs, tax returns, bank statements, and, if you are self-employed, possibly a profit and loss statement for the year.
The more of these documents you have ready to go when you are applying for the loan, the more likely that you will be approved quickly.
Getting approved for a mortgage loan today is much easier than it was right after the mortgage crash of 2007 and 2008. If you keep these tips in mind, you will be able to get approved for a mortgage loan faster.
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