In a world where the price of a home makes it one of the most significant purchases of life, it is natural to wonder how to ensure that your mortgage application gets approved. Instead of dwelling on the ponderous question, here are six pathways to prepare yourself for obtaining a mortgage for the home of your dreams.
If you find your income figures falling short of qualifying for the loan, resort to needing a co-signer. They add weight to your application with their income being accounted into affordability. The key, of course, is that your co-signer stands on the foundation of a good employment history, reliable income, and impressive credit history. However, bear in mind the legal and financial obligations they're signing up for. Remember, the ideal arrangement sees co-signers putting the lender's worry to rest about your potential payment defaults rather than becoming your monthly paymasters.
When the economic climate or real estate market isn't exactly in sunshine mode, waiting out the storm can be an option. As lenders grapple under regulatory scrutiny and manage their risk portfolios, you can use this time to tighten your position by working on your credit score, reducing debt, and bolstering savings.
Credit history plays a pivotal role in swaying your mortgage approval chances. If you lack credit history, consider opening a secured credit card, which requires a deposit that mirrors your credit limit. Banks love responsible borrowers, so by demonstrating regular and timely payments on a low-risk secured card, you improve your chances of being seen as a safe bet for mortgage approval.
Keep your credit utilization ratio below 30% to avoid being seen as a credit risk. If your debt-to-income ratio is tipping above 43%, optimize your spending or increase your income to control that figure.
If being patient isn't your strong suit and bigger sums evade your qualification, consider smaller homes or moving to more affordable locations. In due time, as your financial status ascends, you can always upscale.
Banks, surprisingly, do entertain appeals for a second opinion on rejected loan applications. Explain your circumstances, rope in a compelling reason, and back your case up with solid credit history to request an exception.
Remember, opening your search to include different types of lenders could turn the tide in your favor. Different lenders have different credit requirements for mortgages. So if one says 'no,' another might say 'yes.' But if multiple declines echo the same problem, it's more about you than the lender.
Finally, some institutions offer programs for low to moderate-income borrowers. These usually come under the umbrella of FHA loans, insured by the Federal Housing Administration, lowering the banks' risk in issuing your mortgage loan.
How much you can borrow comes as a function of your income, debt levels, credit history, and specific lender requirements. Typically, it’s safer to aim for monthly payments less than 30% of your monthly take-home income.
To conclude, the prospect of a mortgage approval doesn't have to hang like a cloud if you follow these steps. Remember to do your homework, understand what lenders want, and position your financial circumstances smartly.