We all have that dream home in our minds. Perhaps yours is a small ranch-style…
How to Increase Your Mortgage Pre-Approval Odds
If you’re ready to move forward with purchasing your first home, you might be wondering what you can do to increase your mortgage pre-approval odds. After all, a mortgage is what will allow you to buy the home of your dreams. This means you want to get a good rate. Fortunately, there are a few steps you can take to make this pre-approval process easier. Here are some of them:
1. Pay Off Your Debts
How much money are you paying toward your debts per month? While they consider utility bills and other necessities, your mortgage lender is primarily concerned with the amount of money you bring in (and pay out) per month, especially in regards to debts. Ideally, lenders look for applicants who have a credit utilization score below 30 percent. In other words, your debts shouldn’t exceed 30 percent of your finances.
If you currently have a lot of debt, the easiest thing to do is to determine what the lowest amount owed is and work to pay that off. So, if you have a card that has a balance of $1,500, choose that as your first card to pay off. This is easier than trying to pay down a credit card that has, for example, $8,000. Plus, it will increase your credit score in the process.
2. Increase Your Credit Score
When you apply for a mortgage, your lender is going to take a look at your credit score. The lower your credit score, the higher the interest rate you’ll likely pay. Likewise, the better your credit score is, the lower your rate will be. Not only can you increase your credit score by utilizing the method listed above, but you can see where you can make cuts. If you charge that latte every Friday morning, cutting it out can save you money and put less on your card.
Another trick you can use? Credit sites like Experian allow you to link your bank account so your credit score can include on-time utility payments to increase your score.
3. Stay in Your Mortgage Budget
The easiest way you can increase your odds of getting a pre-approval is to know your budget and stick to it. It’s very easy to fall in love with a property outside your budget, but that can make the home buying process all the more complicated. There are plenty of mortgage calculators available online, as well as home affordability calculators, that can help you determine how much you can really afford.
This will ensure that you’re getting pre-approved for something you can genuinely move forward with, as opposed to getting denied or stressing yourself out to keep up with costs you could never really afford in the first place.
4. Make More Money
If you make more income, your chances of approval for a higher amount increase. In order to show this, you may need to update your application by adding more sources of income outside of just your W-2.
Sources of income that you might not consider include bonuses, retirement benefits, side jobs, child support, and income from disability. The more money you make, the easier it becomes for you to get approved for a mortgage. When applying for a mortgage, be sure to include all of this to help your chances. If you forgot to include them at first, talk to your lender about adding them to your application.
5. Apply for a Mortgage Loan with a Longer Term
If you can, spread your payments out to make them easier to manage. Due to this, a lender might be more willing to give you a loan for a longer term, since lower payments mean that they’re more likely not to default. This makes it more enticing to a lender and increases your approval chances. Plus, while the term of the loan may be longer, it makes things more affordable for you on a monthly basis, giving you more financial freedom.
6. Make a Down Payment of 20%
The larger your down payment, the better your chances of a loan working out in your favor. Paying at least 20% of the total purchase price eliminates the need for private mortgage insurance, which would be an additional cost added to your monthly payment.
Since there is no need for this additional cost, a lender is more likely to approve you and maybe even increase what you’re approved for. Not only does this drop the need for private mortgage insurance, but it also helps decrease your monthly payments, making it not only easier for you to afford a monthly mortgage payment, but gives you a bit more wiggle room in your wallet on a monthly basis.
7. Get Someone to Co-sign with You for a Mortgage
While this isn’t an ideal scenario, getting someone to co-sign on your mortgage with you might help you get an approval. The challenge for this one is to find someone who would be willing to co-sign. Even though you’d be living in the house, their assets would be what’s at stake if you fail to keep up with your payments.
While it might be difficult to get someone to co-sign, it can help you out tremendously, increasing your chances of a pre-approval significantly. If you have a family member or friend who is willing to help out in this regard, it can mean a huge difference over whether or not you get approved.
Are You Ready to Move Forward with a Mortgage?
If you’re looking to get pre-approved for a mortgage, Direct Home Lending can help. We offer a number of different lending and mortgage options as well as refinancing. You can even look at going mortgage rates, which we update daily on our website. For a quote or help applying for a mortgage, head over to our website. Or give us a call at (800) 575-3648. We can help you with all of your mortgage needs. And we’ll help you through the mortgage application and pre-approval process.