Not being well-prepared can make it more difficult to get a home loan. Here are some tips to help you ensure your application is approved:
Lower Your Current Debt and Avoid New Debt
Getting qualified for a home loan doesn’t require you to have zero credit card debt. However, the lower your debt is, the better it is for your loan application. The amount you owe influences your eligibility to borrow money and how much a lender will give you.
In this regard, your debt-to-income ratio is crucial in determining whether you’ll be granted a loan. A higher debt ratio because of heavy credit card debt increases the chances of your application getting rejected. Your overall monthly debt payments should be less than 36% of your gross monthly income. Therefore, paying down current debt before submitting a loan application can boost your loan application as your debt-to-income ratio lowers. Doing so can also help you get a better interest rate.
Additionally, avoid taking on new debt and making any major purchases until you close your home loan. Before closing the loan, lenders recheck the candidate’s credit report, and any additional debts can push them to disqualify you.
Check Your Credit Score
Credit scores and credit activity are major determinants in the home loan approval process. A poor credit score may be caused due to missed payments, frequent late payments, and other such factors. A low score can damage your chances of getting a home loan.
Before you apply for a loan, pull your credit report, and check your score. The best way to make sure you have a healthy credit score is to lower your debts, clear your bills on time, and review your credit report frequently.
Getting pre-approved for a home loan helps you get a clear idea about how much you can afford and what interest rate you’ll be offered. The pre-approval process requires you to contact (a) mortgage lender(s), submit your personal and financial information, and wait for a response.
Apart from these, it’s also a good idea to stay employed at your current job and save cash for expenses like a down payment, credit report fees, closing costs, home appraisals, application fees, and home inspections. The best way to be able to purchase your dream house is to make a realistic plan and follow through with it.