What Mortgage Lenders Want: A Guide to Getting Approved for a Home Loan
When applying for a mortgage, there are several things that mortgage companies like to see on your application to improve your chances of getting approved for a loan:
GOOD CREDIT SCORE
A high credit score shows that you have a history of making timely payments and managing your debts responsibly. Most lenders prefer to see a credit score of 620 or higher. There are several things you can do to raise your credit score:
* Pay your bills on time: Late payments can have a negative impact on your credit score. Make sure to pay your bills on time every month, including credit card bills, utility bills, and other debts.
* Keep your Credit Card balances low: High credit card balances can hurt your credit score. Try to keep your balances below 30% of your credit limit.
* Check your credit report for errors: Errors on your credit report can hurt your credit score. Check your credit report regularly to ensure that all information is accurate.
* Increase your credit limit: Increasing your credit limit can lower your credit utilization ratio, which can help improve your credit score.
* Don't open too many accounts: Opening too many new accounts in a short period of time can hurt your credit score. Only apply for credit when you need it.
* Use different types of credit: Having a mix of different types of credit, such as credit cards, loans, and mortgages, can help improve your credit score.
* Keep old credit cards open: Keeping old credit accounts open can help improve your credit score by increasing the length of your credit history.
Remember that improving your credit score takes time and effort, but it's worth it in the long run.
Lenders want to see that you have a stable source of income that can cover your mortgage payments. They will typically ask for several months of bank statements and pay stubs to verify your income.
LOW DEBT TO INCOME RATIO
Lenders also want to see that you have a manageable amount of debt compared to your income. They will calculate your debt-to-income ratio, which is the percentage of your monthly income that goes towards debt payments.
Having a larger down payment shows that you are committed to the purchase and are less likely to default on the loan. Lenders typically prefer a down payment of at least 20%.
Lenders prefer to see a steady employment history, typically of at least two years. If you have recently changed jobs or started your own business, you may need to provide additional documentation to prove your income and employment stability.
The lender will require an appraisal of the property you are purchasing to ensure that it is worth the amount of the loan.
Overall, the key to getting approved for a mortgage is to show that you are a responsible borrower who is capable of making timely payments and managing your debt.