While everyone has different goals in life, many people have a common goal of buying a home. To achieve that, you need to secure a mortgage that will make your home affordable successfully.
Mortgage loans help us afford houses—without them, most of the population would struggle to own a home. But, yes, some still dislike the idea of lenders and borrowing money.
However, mortgages are considerably different than most loans. So lenders need to follow set rules that make them stricter than most. For instance, it will be easier for you to get a short-term personal loan than to get a mortgage. Essentially, this is down to how much money you have to borrow—it’s a lot, and lenders need to ensure you are suitable for it.
Consequently, you can be in situations where your mortgage application is denied because lenders don’t think you’re up to scratch.
How can you put a stop to this? Are there things to do to help you stand a better chance of securing a mortgage? Yes, yes, there are!
These tips are the best ones to follow for learning how to get preapproved for a mortgage and ultimately improve your chances of securing a home.
1. Pay your bills on time
Fairly obvious paying your bills on time will ensure that you minimize debt on your credit report. It also showcases that you’re financially responsible and can handle making multiple payments every month without fail. Where possible, you should set up automatic payments on your bills, so they come out each month without you having to do anything. Then, provided you budget accordingly, you’ll pay for everything on time without running out of money.
2. Check for any errors on your credit report
It’s always wise to use a service that lets you check your credit score and see a detailed credit report online. The score is naturally essential and affects what’s in your account. Too many people make the error of looking at the score and leaving it at that. Instead, you must go through the description and check all the information.
Believe it or not, there can be incorrect info that’s bringing your score down. For example, you may have data suggesting you’ve recently applied for credit when you haven’t. Or, it may say that you’ve not paid a particular bill when you have. Disputing credit report errors is essential as you need them removed from your file. Once all errors are gone, your score should improve, and lenders might be more inclined to give you a chance.
3. Save up to make a larger down payment
Your down payment is a deposit you put down on the home. It covers a percentage of the property’s cost, and your mortgage loan will cover the rest. Therefore, the higher the down payment, the smaller the loan. Currently, the average downpayment is around 7%, but people have been putting down 20% or more as of late. As such, you are making a larger down payment could be worth saving more money if you want to get your mortgage application accepted quickly.
By borrowing less money, the lender has less to worry about. It can also make life easier for you as all the repayments will be reduced. Your income doesn’t fall under as much pressure when you need a loan to cover 80% of the property as if you need one to cover 93%. Does that make sense? Many percentages are being thrown about, but the gist is that paying more money towards the downpayment lets you get a more affordable mortgage.
4. Take steps to lower your DTI
Firstly, understand what a DTI is! It stands for debt-to-income ratio, which relates to how much money you owe monthly in conjunction with what you earn. The lower the ratio, the better, which means you have enough income to cover your debts without a struggle. Mortgage lenders always look at your DTI as a way of deciding if you are worthy of borrowing money or not.
A high DTI means you have lots of money leaving your accounts without much income to cover the payments. It could mean you’re left with very little money after paying your debts – or some of you may not even be able to pay them all. You can use a DTI calculator to figure out your ratio, which can be a wake-up call for you. Everyone should aim to keep their DTI as low as possible, which can be done by either reducing their debts or increasing their income. Taking both approaches will be even better!
5. Register to vote
Registering to vote is one of the easiest ways to increase your credit score and make it more likely for lenders to accept a mortgage application. Some lenders will have a rule that you must be registered to vote to borrow money from them. It’s not technically a legal rule, though it is well known that people who aren’t registered to vote will struggle to command a good credit score. Thus, it will be harder to get a mortgage.
6. De-link yourself from previous partners
Do you have any previous partners you used to share financial accounts with? Perhaps you took out a joint credit card when you were together? If you are separated from one another, there’s no reason for you to have a joint account still. You need to de-link yourself from any charges as soon as possible. Your credit report will be affected by someone else’s credit habits if linked to one of your accounts.
It’s not just a case of old lovers sharing credit card accounts. Many students or younger people have joint accounts with flatmates to share household bills. It could be bad news if you’re still linked on your report. Go through it and ensure any links are severed.
7. Reduce your spending
Generally, reducing your spending is solid financial advice for anyone hoping to save money. It can make it easier for you to afford a larger down payment on your home and help you set more money aside to cover mortgage repayments. However, there’s another reason why reducing your spending – particularly in the weeks/months leading up to your mortgage application – can be highly beneficial.
Many lenders ask for bank statements as part of your application. This is to verify your income, but it’s also to check your spending habits. If they see that you have loads of money leaving your account every week/month, it reflects poorly on you. It shows you don’t have reasonable control over your finances and keep spending lots of money. How can they trust someone like this to repay their mortgage? By contrast, if you have minimal expenditure in the months leading to the application, it paints you positively. You’re more likely to be accepted as they trust your financial capabilities.
On that note, you’ve now seen how you can increase the chances of getting a mortgage with your first application. Ultimately, it’s all about making yourself seem creditworthy and financially responsible. One final note, if you’ve already applied for a mortgage and been denied, it’s helpful to ask why this was the case. The lender can provide details on where you’re lacking, so you can work on them!