When you’re in the market for a home, the search is often the most fun. You get to attend open houses (and, hopefully, get some free refreshments), check out all sorts of interesting styles and types of architecture, and eventually settle on the home that’s right for you. Unfortunately, once you’ve decided on a home, the stressful part of home buying begins: applying for a mortgage. There’s nothing worse than having your heart set on a beautiful new home in a wonderful location only to be turned down for a mortgage. Here are a few things you can do beforehand to help improve your chances of being approved for a mortgage:
- Get your credit reports early. There are 3 major credit bureaus, and you’ll want to get a report from each one to make sure there are no errors. If you have late payments or collections, ask the creditor to remove them. Additionally, if your credit score is lower than you’d like, work with a credit counselor to come up with ways to improve it.
- Know your income. Lenders like to see at least 2-years of continuous employment in the same job in their applicants. Sometimes, if you’ve changed companies but still do the same job, lenders will still count your income from your previous employer as well as your current one. However, when an applicant has changed fields in the past 2-years, lenders are often apprehensive about approving the application.
- Pay off as much of your debt as possible before you even apply. If you have too much debt in relation to your income, regardless of whether or not you’re making payments on time, a lender might not approve your application. Typically, they don’t like to see a debt:income ratio above 43%.
- Make sure you can show where your funds come from. If you’ve been gifted a down payment, make sure you’ve got a paper trail showing where that money came from. Additionally, make sure that the person (or people) who gifted you the down payment can show where the money came from and that they can actually afford to gift you the payment. They’ll likely need a good deal of their financial information ready, so ask them to get it available ahead of time.
Unless you’re fabulously wealthy, or choose to live way, way below your means, there’s really no sure-fire way to ensure 100% that a lender will grant you a mortgage. However, taking these 4 tips to heart before you apply can increase your chances and help reduce some of the stress.