Tips on How to Get Your Home Mortgage Loan Approved
There are a lot of people in this world that doesn’t know the first thing about getting a mortgage loan. They easily buy houses that they think are in low prices. But the process on getting a home loan is just the same as renting an apartment or getting a car loan.
Here’s how you can educate yourself about getting a home loan and to avoid the disappointment of it.
- Save Cash
Main requirement in getting a home loan is cash. You need to be ready and at least save some cash when walking into a lender’s office to avoid getting rejected. This is the common mistakes people do when getting a home loan. Mortgage lenders need to know if you can pay the loan by the amount of cash you have in your savings account and, they now require a down payment for the zero-down mortgage loans. However, down payments aren’t the only expense you must worry about. Getting a mortgage also involves closing costs, home inspections, home appraisals, title searches, credit report fees, application fees, and other expenses. Closing costs are roughly 3% to 5% of the mortgage balance – paid to your lender before you can seal the deal.
- Pay Your Debt
You might get rejected if you have tons of debts, but you don’t need a zero balance on your credit cards to qualify for a mortgage loan. But the less debt you have, the chances are higher for you to get approved. If you have a lot of debts, the lender can reject your application or offer you a lower mortgage. This is because your entire monthly debt payments — including the mortgage – shouldn’t exceed 36% of your gross monthly income.
As a rule, avoid any major purchases until after you’ve closed on the mortgage loan. This can include financing a new car, purchasing home appliances with your credit card, or cosigning someone’s loan.
- Know Your Credit Score
It literally takes a few minutes to pull your credit report and order your credit score. But surprisingly, some future home buyers never review their scores and credit history before submitting a home loan application, assuming that their scores are high enough to qualify. And many never consider the possibility of identity theft. However, a low credit score and credit fraud can stop a mortgage application dead in its tracks. You can sign up for Credit Karma and receive your credit score in minutes.
Credit scores and credit activity have a major impact on mortgage approvals. According to the Home Loan Learning Center, a large percentage of lenders require a minimum credit score of 680 (620 for FHA mortgage loans) – and if your score falls below 680, lenders can deny your request for a conventional mortgage loan.
In addition to higher credit score requirements, several missed payments, frequent lateness, and other derogatory credit information can stop mortgage approvals. Pay your bills on time, lower your debts, and stay on top of your credit report. Cleaning up your credit history beforehand and fixing errors on your credit report are key to keeping up a good credit score.
- Stay at Your Job
I know someone who quit working seven days before she and her husband were to close on their mortgage loan. I have no idea why, and unfortunately, it didn’t turn out well for them. They couldn’t close on their new home and they lost out on a great deal.
Sticking with your employer while going through the home buying process is crucial. Any changes to your employment or income status can stop or greatly delay the mortgage process.
Lenders approve your home loan based on the information provided in your application. Taking a lower-paying job or quitting your job to become self-employed throws a wrench in the plans, and lenders must reevaluate your finances to see if you still qualify for the loan.
- Get Pre-Approved for a Mortgage
Getting pre-approved for a mortgage loan before looking at houses is emotionally and financially responsible. On one hand, you know what you can spend before bidding on properties. And on the other hand, you avoid falling in love with a house that you can’t afford.
The pre-approval process is fairly simple: Contact a mortgage lender (or multiple lenders at one time through Credible), submit your financial and personal information, and wait for a response. Pre-approvals include everything from how much you can afford, to the interest rate you’ll pay on the loan. The lender prints a pre-approval letter for your records, and funds are available as soon as a seller accepts your bid. Though it’s not always that simple, it can be.
- Know What You Can Afford
I know from personal experience that lenders do pre-approve applicants for more than they can afford. After receiving a pre-approval letter from our lender, my husband and I wondered whether they had read the right tax returns. We appreciated the lender’s generosity, but ultimately decided on a home that fit comfortably within our budget.
Don’t let lenders dictate how much you should spend on a mortgage loan. Lenders determine pre-approval amounts based on your income and credit report, and they don’t factor in how much you spend on daycare, insurance, groceries, or fuel. Rather than purchase a more expensive house because the lender says you can, be smart and keep your housing expense within your means.
Final Word
If you don’t meet the qualifications for a mortgage loan, don’t get discouraged. Instead, let it be motivation to improve your credit and finances. Many people have risen above credit problems, bankruptcy, foreclosure, and repossession specifically in order to purchase their first house. Just be sure to implement a realistic plan and stick to it.
How long did it take you to realize your dream of home ownership? If you’re currently working toward this goal, what steps have you taken?