6 Simple and Effective Ways to Get Approved for a Mortgage

Getting approved for a mortgage may feel overwhelming initially, especially since the requirements seem so strict, but it’s not as complicated as you think.

The key is to be an informed borrower and know what lenders need to approve you for a mortgage loan. Each lender has different requirements, but overall, you need decent credit, an average debt-to-income ratio, solid housing history, and proof you can afford the loan.

The more time you have to prepare for a mortgage, the easier it is to get approved. Here are six ways to help improve your chances of mortgage approval.

Know your Credit History

When determining a good candidate, your credit history and score are the first things lenders consider when deciding if you qualify for the loan. Knowing your credit history can help determine if you should change anything before applying for a mortgage.

Everyone gets free access to their credit report once a year, so check yours often, and take care of any negative information, such as:

• Late payments (bring them current)
• Credit balances higher than 30% of your credit limit (pay them down)
• Collections or judgments (possibly satisfy them depending on date of last activity)
• Mistakes or fraudulent information (report them to the credit bureaus)

To keep your credit score high or improve a low score, be sure to do the following:

• Pay your bills on time
• Don’t use your credit cards unless necessary
• Pay any large debts down or off
• Don’t open or close new accounts

Keep a Good Housing History

Lenders look specifically at your housing history to determine if you’re a reasonable risk. This applies whether you rented or owned a home previously.

Even though rent doesn’t appear on your credit report, lenders may ask for a Verification of Rent from your landlord to determine if you made your housing payments on time. They typically ask for the history of payments over the last 12 – 24 months.

This is especially common if you have a somewhat shaking credit history. Late or completely missed payments can hurt your chances of approval. So be sure to make your payments on time.

Watch your Debt-to-Income Ratio

Lenders measure your total debts to income to determine the new payment’s affordability. Your DTI includes the following:

• Housing (new mortgage payment)
• Minimum credit card payments
• Car payments
• Student loan payments
• Personal loan payments
• Any other debts reported on your credit report.

Lenders don’t include other basic bills, including:

• Utilities
• Groceries
• Insurance
• Clothing
• Other basic living expenses

To avoid increasing your DTI, stop using your credit cards and don’t apply for any new debt. The higher your debt balances, the harder it is to qualify for a mortgage.

Watch your Credit Utilization Rates

Your credit utilization compares your outstanding debt to your credit lines. The more debt you have outstanding, the higher risk you pose to lenders.

Ideally, you should have 30% or less of your credit line outstanding. For example, if you have a $3,000 credit line, you shouldn’t have a balance higher than $900. If you do, it shows that you spend more than you can afford.

In a perfect world, you’ll pay your credit card debt monthly. But lenders understand that life happens, and you can’t always pay your balance in full. So to avoid increasing your credit utilization rate too much, avoid using credit cards as much as possible, and if you do, ensure you can pay the balance in full.

Apply for Pre-Qualification

Before looking at homes, consider getting prequalified. A pre-qualification is an estimate of what you can afford, but it allows you to understand what lenders think.

You’ll work with a loan officer who you’ll disclose your qualifying information to. The loan officer will compare your information to the lenders’ requirements to determine if you’d qualify.

This isn’t a concrete approval, but it gives you an idea of what you can afford or what you’d need to change if your factors don’t meet the lender’s requirements. Do this step months before you’re ready to buy a house so you have time to fix any issues the loan officer discovers.

Get Pre-Approved

When you’re ready to look at homes and feel you’ve optimized your qualifying factors, apply for pre-approval. This is a step up from getting prequalified and requires you to provide proof to the lender of your qualifying factors, including:

• Paystubs for the last month
• W-2s for the previous two years
• Tax returns for the previous two years if self-employed
• Bank statements for the previous two months
• Proof of employment
• Approval to pull your credit

Your documentation will be reviewed and a determination will be made if your credit is pre-approved. If so, they’ll write a pre-approval letter stating how much you can afford, at what rate, and which loan program.

The letter will also contain conditions you must satisfy. Some conditions may be about your personal qualifying factors, and there will always be conditions about the house you find since you haven’t looked at homes yet.

For example, the home must be worth at least as much as you offered to pay, pass the lender’s appraisal conditions, and have a clear title free of any liens.

Final Thoughts

Getting approved for a mortgage isn’t as overwhelming as it may seem. Preparing for it should start months or even a year before you purchase a home. This allows you plenty of time to fix any issues underwriters find so you can get the mortgage you need.

The key is to work with a qualified professional who can shop for the best rate and terms and help you understand your options. A mortgage is a significant investment and one you should choose carefully. Preparing yourself as much as possible to get the best rates and terms could save you thousands of dollars over the life of the loan.

At Innovative Mortgage Brokers, we can help you navigate the complex world of mortgages and find a competitive loan for your needs if you are looking in Pennsylvania (PA) or Florida (FL).

Here are some reasons why using Innovative Mortgage Brokers can be beneficial:

1. Access to a wide range of lenders: We have access to a variety of lenders. Thus, we can compare rates and terms to find the best fit for your individual needs.
2. More personalized service: At Innovative Mortgage Brokers we work with you one-on-one to understand your unique financial situation and goals. We provide personalized advice and guidance throughout the entire mortgage process.
3. Expertise in the industry: We know the mortgage industry and can help you understand the various loan options available to you. We can also explain complicated terms and conditions in plain language, making it easier for you to make informed decisions.
4. Save time and effort: Instead of spending hours researching different lenders and loan options, we will do the legwork for you. We streamline the application process and help you gather all the necessary documents and information.

Overall, working with us can help you get approved for a mortgage faster and with less stress. If you are looking for a mortgage in Pennsylvania (PA) or Florida (FL), contact us today to learn more about how we can help you achieve your homeownership dreams.