Expert Tips for Getting Approved for a Mortgage Loan
Navigating the Mortgage Maze: Expert Tips for Loan Approval
Are you considering buying your dream home but feeling daunted by the home loan approval process? You're not alone. Securing a mortgage can be complex, but understanding a few key aspects can significantly improve your chances of approval. Here is expert advice from Scout Mortgage on making your home ownership journey a success.
How to Improve Your Chances of Getting Approved for a Home Loan
- Home Loans and a Good Credit Score:
- Your credit score is one of the most critical factors in obtaining a mortgage approval. Paying your bills on time, reducing debt, and avoiding new credit inquiries will enhance your credit profile and boost your score. If you are shopping for a lender and mortgage rates, you do not need to let a lender pull your credit in order to quote you a rate and estimated closing costs. Simply provide the lender with your estimated credit score. You can obtain your estimated credit score from many sources such as your bank, your credit card company or the credit report agencies.
- Save for a Down Payment:
- Larger down payments usually increase your approval chances and may qualify for a better interest rate and lower closing costs. If you put at least 20% of the home’s purchase price down, you will eliminate private mortgage insurance (PMI). If you have less than a 20% down payment you will have PMI. However, PMI premiums have come down significantly over the last few years even with as little as 3% down.
- Reduce Your Debt-to-Income Ratio (DTI):
- Lenders often prefer a DTI ratio below 43%. Pay down existing debt and avoid taking on new obligations in the months leading up to your mortgage application. If you have good credit, most applicants qualify with a DTI up to 50% of their gross monthly income. Your DTI ratio is calculated by dividing your gross monthly income by total monthly debt payments (mortgage payment, HOA Dues, minimum credit card payments, car payments, student loan payments, etc.). Utility payments are not included in your DTI ratio.
- Steady Employment and Income:
- A stable job history and consistent income reassure lenders of your ability to make regular payments. Avoid job changes or significant income alterations during the application process. Lenders will examine your last two years of employment history.
Easiest Home Loan to Get Approved For
For many first-time buyers, FHA loans can be the most accessible option. These loans are backed by the Federal Housing Administration and require less stringent credit qualifications, allowing for credit scores as low as 580 with a 3.5% down payment. Some lenders will approval applicants with a credit score between 500 – 579, but a 10% down payment is required.
VA loans for veterans also offer accessible terms with no down payment.
What Not to Say to a Mortgage Lender
- Avoid Discussing Job Instability:
- Refrain from mentioning any intention to change jobs or take time off unless asked directly.
- Do Not Exaggerate Financial Information:
- Misrepresenting your income or hoping the lender won’t verify details can derail your process. Be upfront and accurate.
- Avoid Comments About the House’s Affordability:
- Expressing doubts about being able to cover mortgage payments might make lenders hesitant to approve your loan.
What Negatively Affects Mortgage Approvals
- Poor Credit History: A large amount of debt, missed payments, or bankruptcies can lead to disqualification or higher interest rates.
- High DTI Ratios: A DTI ratio above 50% generally results in the applicant being declined. If you have a high DTI ratio, working with an experienced loan officer can make the difference between being approved for a loan or declined.
- Unstable Employment: Frequent job changes or inconsistent income can make it difficult for lenders to assess your financial stability. Lenders will examine your last two years of income and employment history.
- Incomplete Documentation: Failure to provide necessary paperwork promptly can delay or prevent approval.
The Biggest Factors for Mortgage Approval
Your credit scores and DTI ratio stand as the most important factors in getting approved. They influence not only your ability to get approved, but also the interest rate, closing costs and terms of your loan. By maintaining a strong credit score and effectively managing your DTI, you will position yourself favorably in the eyes of Lenders and give yourself the most options and flexibility.
In conclusion, preparation is key when it comes to getting approved for a mortgage loan. By understanding what lenders look for and making strategic financial decisions, you can greatly improve your chances of obtaining the loan you need to secure the purchase of your new home. Remember, being informed and prepared can turn the daunting process of mortgage approval into a straightforward path to homeownership.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.