Getting approved for a home loan can be hectic, especially for a person whose application was rejected before. Lending thousands or millions of dollars is a risky business for banks. So, banks aren’t going to lend money unless they are confident the borrower will repay the loan on time. If loan officers have dashed your dream of owning a home by denying your application, the following steps can increase your chances of getting approved for a home loan.
Improve Your Credit Score
It takes a few minutes to request a credit report and review the credit score. Homeowners often make the mistake of submitting their mortgage application before reviewing their credit history and score. Never assume that your credits score is high enough to get approved for a mortgage. Also, some borrowers never consider the possibility of credit and credit score fraud; instead, they assume it can’t stop their home loan application. Credit activities and scores can have a significant impact on home loan approval. A large percentage of lenders require a minimum score of 680 to qualify for a home loan. Borrowers whose scores are under 680 are likely to be denied a conventional home loan.
Avoid Missed Payments and Lateness
Other derogatory credit information that can make your mortgage loan denied include frequent lateness and several missed payments. However, reviewing your credit report, lowering debts, and paying bills on time can increase your mortgage approval chances. The key to maintaining a high credit score is fixing errors on a credit report and cleaning up credit history before applying for a loan.
Your credit card balance doesn’t have to be zero to qualify for a home loan. However, the less a borrower owes debtors, the higher the approval chances. Debts can determine if you are eligible for a loan and the amount that a lender can lend you. Banks evaluate your debt-to-income ratio to determine your eligibility for a home loan. Lenders are likely to offer a lower home loan or turn down the request of a lender with a high debt ratio. Borrowers should keep their monthly debt payment below 36% to qualify for a mortgage loan. Borrowers can lower their debt-to-income ratio by paying down their debt before applying for a loan. Debt repayment can also help qualify for a higher mortgage rate.
Experts recommend avoiding new debts even after getting approved for a home loan. Banks re-check a borrower’s credit report before approving a mortgage application. So, a lender can deny the application if the credit report reveals additional debts.
Save Some Cash
Mortgage loan qualification requirements can change over time, and if you intend to apply for a home loan in the future, be ready to cough up a few dollars. One way to get your loan application denied is walking into the bank with zero cash in your account. Home loan lenders have, over time, become cautious and no longer give mortgage loans without a down payment. Minimum down payment tends to vary depending on the factors such as the lender and the type of loan. Each lender establishes its down payment criteria, but on average, a borrower should have at least 3.5% down payment. But a person with means can aim for a higher down payment than the minimum requirement. A down payment of up to 20% can alleviate PMI, which is the insurance that lenders attach to home loans without 20% equity. Getting rid of PMI can lower your monthly home loan repayment and make your mortgage repayment journey less stressful.
Change Your Financial Situation Dynamics
Qualifying for a home loan can be a challenge for some people. Borrowers might need to make decisions that will change their financial situation to qualify for a home loan. That’s because a home loan will affect their monthly budgets. One thing borrowers can do to increase their mortgage approval chances is making sure they meet the criteria set by their lender. A higher credit score and reputable credit history can help with instant mortgage approval. Also, avoid debts and repay your debts on time to improve your credit history.
Have Your Documents Ready
Borrowers using their house collateral need proper documentation. Other documentation that a lender will likely review before loaning you is your proof of income. Making sure you have all the required documents will make you more eligible for a mortgage loan.