One of the more daunting tasks you will encounter in your financial life is filling out a mortgage application. Not only is your mortgage application fairly involved, but the requirements for getting a mortgage have tightened in recent years. As a result, your mortgage application may raise red flags to lenders and it can be somewhat difficult to get a home loan.
Improve your credit score
As part of your mortgage application, the lender will request your credit score. As a result, it is very important to have a good score. Most lenders want to see at least a 670 credit score before they approve your for a home loan. If you want access to the best mortgage rates, you may need a score of at least 740.
In order to improve your credit score, you need to show that you are responsible with credit. This means that you will need to engage in the following activities to give your credit score a boost:
- Pay down debt(s)
- Make all payment on time and in-full
- Don’t cancel your oldest credit cards
- Fix errors on your credit report
It can take between 30 and 90 days for your efforts to show up on your credit report, so it is a good idea to plan ahead.
Save up for a down payment
On your mortgage application, you will have to list your assets and declare how much you plan to pay up-front. The larger your down payment is, the more likely you are to be approved for a mortgage loan. Most mortgage lenders require at least 5% of the home’s purchase price, and many want to see 10% down or more. If you are building a home, you will probably need 20% down for loan approval. Take time to save up the funds so your mortgage application has a better chance of being approved.
Apply for a mortgage you can afford
You will need to show that you can afford the monthly mortgage payments. On the mortgage application, you must provide your income and debt obligations. You can run the numbers yourself to see if you meet the standard requirements for a 28/36 qualifying ratio. (This means that your housing expenses will account for only 28% of your income, and that your total monthly obligations including the mortgage will not exceed 36% of your monthly income.) Note that you may have to settle for a smaller home in order to find a mortgage that is truly affordable.
Ideally, your mortgage application will reflect that you are financially responsible and have stable income. If you misrepresent any information on the mortgage application, it will slow (or even halt) the approval process. Make sure you provide the lender with accurate information so they can help find the loan that works best for you.