Getting approval for a home mortgage may not be easy, especially if you are a first-time homebuyer. Lenders look for many things when deciding whether or not to approve a mortgage application.
According to Forbes, about one-third of Americans without a high credit score are rejected for a home loan mortgage.
This blog post discusses 15 expert tips to increase your chances of getting approved for a home mortgage!
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Being approved for a mortgage can be a nightmare if you do not know these strategies and tips. This is because a mortgage is a large loan, and lenders are careful when they lend their money.
They want to make sure that you can repay the loan, and they will look at various factors to determine this.
So let’s jump into the 15 tips I’ve prepared!
Table of Contents
1) Track all income and expenses.
One of the most important things you can do before applying for a mortgage is to create a budget and stick to it. Know where all your money is coming from and leaving to.
This will show the lender that you are financially responsible and can stay disciplined within your budget. It is important to include all of your income and expenses in your budget, including debts and bills.
Lenders want to see that you can afford your monthly mortgage payments, other expenses, and/or debt payments.
If you show them that you can live within your means, they will be more likely to approve your mortgage application!
Related Content: How We Budget Our $100K Income As A Family of Three
2) Save up for a down payment.
Another thing that lenders look at when considering a mortgage application is the amount of money you have saved up for a down payment.
The more money you can put down on your home, the more likely you will get approved for a mortgage.
Generally, if you cannot put down a 20% down payment, you will need to pay mortgage insurance.
The larger the down payment, the lower your monthly payments will be, and the more likely you will get approved for a mortgage.
If you struggle to get a mortgage, a lower total loan amount can help. Saving up can be difficult but well worth it in the long run. I wrote another article specifically sharing 15 Frugal Living Tips to Save a Ton of Money; feel free to check it out!
3) Have a good credit score.
Lenders consider your credit score one of the most important factors when approving a mortgage application.
If you have a good credit score, it will show lenders that you are responsible for your finances.
If you have any negative items on your credit report, it is important to clean them up before applying for a mortgage.
This will show lenders that you are improving your finances and are more likely to make your monthly payments on time.
To boost your credit score, make sure to pay your bills on time, keep your credit utilization low, and don’t apply for too many loans at once.
4) Get pre-approved for a mortgage.
Getting pre-approved for one is a good idea if you want to increase your chances of getting approved for a mortgage.
This means that you have already been through the underwriting process and have been given conditional approval for a mortgage loan.
Doing so will give lenders confidence that you are a good risk and increase your chances of getting your mortgage approved.
You can use a traditional or an online lender to get a pre-approved mortgage.
Online lenders can often give you a decision more quickly, but they may not have as many loan options available.
5) Have a solid job history.
Lenders also look at your job history when considering a mortgage application.
They want to see that you have been employed for two years, which shows stability and responsibility.
If you have been unemployed or had a lot of job changes, it may not be easy to get approved for a mortgage.
6) Have a low debt-to-income ratio.
Another thing that lenders look at when considering a mortgage application is your debt-to-income ratio. This is calculated by dividing your monthly debts by your monthly income.
Lenders want to see that you can afford to pay for debt payments, along with all of the other living expenses.
If you show them that you can handle debt effectively, it can help raise your chances of being approved for a mortgage.
We were able to pay off $56,000 of school loan debt by using the debt snowball method, this helped lower our DTI significantly!
Tips for raising your income:
- Job hunting
- Ask for a raise
- Start a side hustle
- Invest in assets that produce passive income
An excellent way to increase your PASSIVE income is by renting out extra space! With NEIGHBOR, you can easily rent out extra space, such as your garage, self-storage unit, rooms, etc.
Neighbor is recognized nationwide and provides a reliable and safe user experience. Check out how you can start making passive income with Neighbor today!
Tips for eliminating debt:
- Create a budget
- Get rid of unnecessary expenses
- Refinance high-interest debt
- Use the debt snowball method or the debt avalanche method
A low debt-to-income ratio is important for mortgage approval.
For example, consider the two following scenarios:
- Consistent income of $100,000 per year and have $0 in debt.
- Earning $15,000-$20,000 per year and having $10,000 in debt.
If you were a mortgage lender and only had money to invest in one borrower, which one would you choose to lend to? The answer is clearly number one.
7) Save up for closing costs.
When applying for a mortgage, you must save up for closing costs.
These are the fees and expenses that are associated with getting a mortgage. Closing costs typically range from about three to five percent of the total loan amount, so it is important to budget for them.
By showing your lender that you are prepared for all the costs associated with getting a mortgage, you will increase your chances of getting approved.
8) Get help from a Mortgage broker.
If you are unsure how to get approved for a mortgage or have been denied, it may be helpful to work with a mortgage broker.
A mortgage broker can find you the best possible deal on a mortgage and help you navigate the application process.
9) Wait until you are ready.
One of the most important things to remember when applying for a mortgage is to wait until you are ready.
Don’t apply for a mortgage unless you are sure that you can afford the monthly payments. This will only lead to disappointment and could damage your credit score.
Your lack of confidence in paying your monthly payments will cause lenders to disapprove your application.
11) Start building credit ASAP
If you don’t have a lot of credit history or do not have a good credit score, it is important to start building credit (or fixing it) as soon as possible.
This will show lenders that you are responsible with money and can be trusted to make your monthly payments on time.
Related Content: Saved $2,500! How We Successfully Dealt With Debt Collectors
11) Shop around for the best mortgage options
When applying for a mortgage, shopping around for the best options is important. This means comparing interest rates, terms, and fees from different lenders.
By doing your research, you can find the mortgage that is best for you.
The more mortgage options you have, the more likely you will be approved by at least one. However, it’s still important to consider the other tips on this list.
12) Find a co-signer
If you have difficulty getting approved for a mortgage, you might consider finding a co-signer.
A co-signer agrees to sign the loan with you and is responsible for making the payments if you default. This can be a family member, friend, or business partner.
The co-signer will need to have good credit and a steady income. And they should be aware of the risks involved before agreeing to sign the loan.
If you default on the loan, the co-signer will be responsible for the debt, and their credit will be impacted. So it is important only to use a co-signer as a last resort.
13) Rent to own
This is a type of contract in which you agree to rent a property for a specific period, with the option to purchase it at the end of the lease.
This can be a helpful way to get approved for a mortgage if you don’t meet all the requirements.
15) Lease options
This is similar to renting to own but gives you the option to buy the property immediately instead of waiting until the end of the lease.
This can be a good option if you are unsure if you want to purchase the property.
15) Government-backed loan
If you have difficulty getting approved for a mortgage, you may consider a government-backed loan.
These loans are backed by the federal government and have more flexible requirements than traditional mortgages.
Government-backed loans include FHA loans, VA loans, and USDA loans. Each loan program has eligibility requirements, so be sure to research which is right for you.
You may also want to talk to your local housing authority about government-sponsored mortgage assistance programs.
Conclusion
These are just a few tips that can help you get approved for a mortgage.
Be sure to research and talk to a lender about the best options. And remember, it’s always best to prepare for a mortgage well in advance.
Following these tips can improve your chances of getting approved for a mortgage. We wish you the best on your purchasing home journey.
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
