Getting a mortgage towards owning your first home is different from renting an apartment or getting a car loan. Educate yourself before jumping into home ownership on the basis of lower home prices and dropping interest rates. Below are some tips on how first-time home buyers can get approved for a mortgage loan.
1. Determine your credit score
Do you know that it only takes a few minutes to determine your credit score? Unfortunately, many first-time home buyers never put in the effort to review their credit history hoping that their credit scores are high enough to qualify. And many don’t even care about identity theft. Keep in mind that low credit scores and fraud can stop mortgage approvals.
Several missed payments, frequent late payments, and derogatory credit information can also keep your mortgage application from getting approved. So, to increase your chances of getting approved make sure to pay your bills on time, lower your debts, and keep yourself updated with a regular credit report.
2. Make sure you have enough cash
Walking into an Essex mortgage broker with zero cash is the perfect way to get rejected. Home mortgage requirements often change so make sure you have enough cash on hand if you are applying for a home mortgage loan in the near future.
On average, you’ll usually need a minimum down payment of 5%. But don’t settle. Instead, aim for a higher down payment of at least 20% to knock down the mortgage balance that you have to pay for in the future.
Remember that the down payment is only part of the costs. There are still other expenses like title searches, home inspections, appraisals, application fees, etc.
3. Don’t quit your job
I have a couple of friends who, unfortunately, missed out on a great deal because they quit working a week before closing on their home mortgage loan. Stay at your job during the entire home buying process. Any changes to your employment status or income stream can negatively affect your mortgage application.
Keep in mind that lenders base their decision on the information you provided in your application. Any changes to this information (especially the ones that can affect your capacity to pay) will force them to reevaluate.
4. Pay down your debt
You don’t need to be debt-free in order to qualify for a home loan. However, the lower debts, the more chances you have of getting approved. Lenders often use a debt-to-income ratio to determine how much money you can get from them before approving your mortgage loan.
A higher debt-to-income ratio may lead to rejection at worst, or lower mortgage offers, at best. As a rule, stay away from major purchases until after your mortgage is approved. These purchases may include credit card purchases, financing a new car, or being a co-debtor.
Getting a mortgage loan takes a lot of effort and careful planning. If you don’t get approved, don’t lose hope. Use it as an inspiration to improve your credit rating and cash flow. You can always reapply once you feel you’ve done it right.