5 Tips to Get Approved for a Mortgage

In this article, we will take a look at the 5 tips to get approved for a mortgage. If you wish to see our detailed analysis, you can go to 11 Tips to Get Approved for a Mortgage.

5. Lower Your Debts

Once the borrower has an idea of their debt-to-income ratio, they should lower their monthly debts as compared to their incomes. Refinancing, paying down debt more aggressively, and an income-based repayment plan can be solutions to the issue. This can lead to a better chance of getting approved for the mortgage.

4. Improve Your Credit Score

Conventionally, a minimum credit score of 620 to 640 is demanded by lenders. A better credit score can be achieved by making debt payments on time since payment history makes up 35% of the credit score. Debt owed should also be kept low to maintain a good credit score.

3. Identify the Right Mortgage

The borrower should identify the right mortgage based on their own needs. On one hand, the conventional mortgage has higher down payments and stricter criteria for being eligible. The other kind of mortgage is a government-backed mortgage which doesn’t require as much credit score or down payments. Borrowers also need to choose between a fixed interest rate or an interest rate that varies. The term of the loan should also be taken into consideration to see whether paying higher monthly payments over a shorter duration or making affordable payments over an extended period is suitable.

2. Calculate Your Debt-to-Income Ratio

The debt-to-income ratio should be calculated to see how much of the monthly pre-tax income is to be spent on debt repayment. If this ratio is high, debts need to be reduced before applying for a mortgage. Typically, the back-end debt-to-income ratio should ideally be less than 36%. This covers the mortgage and other debt obligations. The front-end ratio including the mortgage-related expenses needs to be below 28%.

1. Check Your Credit Reports

The foremost step before initiating an application process is checking the credit reports. The credit report should be reviewed to check that it doesn’t have any errors. The name, address, and Social Security number should be checked. The credit accounts and loans listed should also be accurate. Through this step, borrowers can also get an idea of what is hurting their credit scores and take any required actions accordingly.

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