How Do You Get Pre-Approved For A Mortgage Loan?
When it comes to becoming a home owner, you need to realize that the process of getting a mortgage is different from getting a car loan. You don’t just jump into home ownership just because interest rates and home prices are dropping. It’s important to know the key factors that you should pay attention to so that you can be pre-approved for a mortgage.
Know Your Credit Score
Ensure you review your credit scores and credit history before you submit your home loan application. Your mortgage application can be denied if you’re involved in credit fraud and if you have a low credit score.
Credit scores and credit activity have huge impacts on your home loan approvals. Most lenders require a credit score of at least 680 (620 for FHA mortgage loans). Your request for a conventional mortgage can be denied if your credit score is less than 680.
Apart from credit score requirements, other factors that can affect your mortgage approvals include frequent lateness in payments, missed payments and other unpleasant credit information. Fixing your credit score before your mortgage application will improve your chances of getting pre-approved for a mortgage.
Save Your Money
If you’re planning to apply for a mortgage in the near future, get ready to provide the money. Walking up to a lender without any money on ground will only make your loan application to end up in the trash can.
The minimum amount of down payment depends on the type of loan that you want and the lender. On average, you should expect at least 3.5% down payment.
Apart from down payments, you also need to pay attention to the closing costs, home inspections, home appraisals, credit report fees, application fees and title searches that are associated with getting a mortgage. Closing costs often range between 3% and 5% of the mortgage balance and it needs to be paid to your lender before the deal can be sealed.
Don’t Quit Your Job
Quitting your job before applying for a home loan won’t go down well with your mortgage application.
Retain your job while you’re going through the process of mortgage application. Your chances of getting pre-approved for a mortgage can be affected by changing your employment or income status.
Lenders use the information provided in your application to approve your home loan. Switching to a lower-paying job will tamper with the mortgage application process because lenders will need to go through your finances again to determine if you’re still qualified for the loan.
Pay Your Debts and Avoid New Debt
You don’t need to have a zero balance on your credit cards before you can be pre-approved for a home loan. However, the less debt you have, the better your chances of securing a mortgage.
Lenders make use of your debt-to-income ratio to see if you qualify for a mortgage. A high debt-to-income ratio will either make your mortgage application to be denied or make you to be offered a lower mortgage. Always remember that your monthly debt payments (including the home loan) shouldn’t be more than 36% of your gross monthly income.
You can lower your debt-to-income ratio by paying down your consumer debt before you apply for a mortgage.
If you’re lucky to get approved for a mortgage with a consumer debt, you need to avoid new debt during the mortgage process. This is because lenders will still go through your credit before closing the deal and the mortgage closing can be stopped if they discover that you have new debts.
Don’t get discouraged if you’re not pre-approved for a mortgage. Instead, let it motivate you to boost your credit and finances. Work on rising above credit problems, bankruptcy and foreclosure in order to improve your chances of buying your home. Implementing the points raised in this article will help you in your mortgage application journey.