Buying a home is one of the most important investments you will ever make. The good news is that mortgage rates have been steadily decreasing, making it easier for you to buy a house. But the process of getting a mortgage is still difficult because not everyone has the necessary qualifications. So, it’s important to know what steps to take to increase your chances of getting this necessary loan. In this post, we’ll discuss some simple ways that will help you increase your chances.
1. Work On Your Credit Score
Having a great credit score and report can greatly enhance your chances of getting a mortgage. Most lenders will want to see that you have been a responsible borrower, and are therefore more likely to repay the loan.
Your credit score shows how your credit health is. Fortunately, you can check it yourself, or ask companies like mortgage checklist to help you out. If you find that it isn’t great, you can improve it by paying your current loans on time, paying your credit card bills on time, and not opening any new accounts.
The highest credit score you have the better your chances of getting a higher loan will be. Fixing mistakes on your credit report can help you get a higher credit score. You can also negotiate the interest rate on your mortgage.
2. Reduce Your Debt-Income Ratio
Your debt-to-income ratio is another key factor to getting approved for a loan. You want it to be as low as possible. If you have high housing expenses or student loans, consider refinancing so the payments are lower monthly. Alternatively you can pay off those debts first before applying for a mortgage.
To calculate your debt-to-income ratio, add up the total of your monthly debts and divide it by your gross income. If you’re working with a broker or lender to get preapproved for a loan, before applying for one, they should help you figure out what’s best in this category based on the property type and price range that you are looking at.
For example: Debt/Income Ratio = $700 (total monthly debt) / $4000 (gross income) = 0.175%
3. Save For Down Payment
A down payment is essential to buying a home. It’s the first thing you’ll need in order to close on any property. In some cases, it may be needed before other costs are paid for and can affect how much of your monthly income goes towards housing expenses such as mortgage payments or rent.
You might not have enough saved up yet, so start saving whatever you can. The more money that comes from savings instead of loans (such as credit cards), the better off you will be when it comes time to buy a house because lenders view this favorably. You don’t want them thinking that they’re lending their own money into something risky. Instead, make sure they see you putting yourself at risk by contributing your own savings.
A higher down payment will also increase your credibility. Your lenders will think you are more serious about the commitment of home ownership and won’t delay in paying back your mortgage.
The Bottom Line
The key to improving your chance of getting a mortgage is having a good credit score, being able to meet all requirements for income and debt ratios. Policies have been put in place by banks over the past few years that make it difficult for some people who are just starting out financially or those with less than perfect credit scores from qualifying. But if you follow these tips, you may get a higher mortgage.