How to Get Approved for a Mortgage

by James Hendrickson on June 1, 2017 · 0 comments

home-1682300_640After the recession, lenders became stricter. However, it is still possible to be approved for your first mortgage as a young buyer. As the economy continues to recover from the recession, many people are looking to purchase homes after living in rented houses for years.

This has made the real estate market quite competitive in most parts of the country and buyers have to put in aggressive offers. Now more than ever, you need to make sure that you are qualified for a mortgage before you start shopping for houses.

What is Takes to Get Mortgage Preapproval

Before you complete a mortgage preapproval application, you need to know the following:

–          The sum of your monthly debt payments, including student loans, credit card payments, and auto loans

–          Your monthly income

–          How much cash you can put down

–          Your credit score as well as any credit issues in recent years

Calculate Monthly Income and Debt Obligations

The first step when preparing to apply for a mortgage is to write down your debt payments and monthly income. You should give the lender at least two pay stubs, so you need to start collecting them. Are you self-employed? If your income is variable, your underwriting process will be more complex.

For instance, you might have to provide copies of previous tax returns. After this, the lender will count your average income for the past two years. Getting mortgage approval is all about staying within the ratios that lenders use to figure out how much you can afford to put towards making payments. Large debt limits will limit your mortgage approval size.

Therefore, you need to pay off some loans first or avoid taking out a loan right before applying for your first mortgage.

Get a Credit Health Checkup

You must verify that your report has no errors before applying for a mortgage. As you start shopping for houses, you should subscribe to a service that monitors your credit report for only 20 dollars per month. Once you close on a home, you can cancel the service.

Your FICO score should be at least 680. If it is less, you might have to improve it or look for a cosigner before getting preapproval. The higher your credit score is, the more your mortgage rate will be – this can mean tens of thousands of dollars in additional interest. You should not apply for new credit several months before applying for a mortgage.

Determine Your Budget

Before you approach any lenders, you should figure out how much house you can afford. The rule of thumb is that your total housing payment should not exceed 35 percent of your gross income. However, equating your monthly payments to a fixed home price can be difficult because your payments will vary depending on home insurance and interest rates.

Save for a Down Payment

You now have to figure out how much you can afford to pay for the down payment. In today’s market, the lender will require at least 10 percent down payment. If you can afford, it you should consider putting down 20% to avoid paying private mortgage insurance.

Before starting the mortgage approval process, you should commit to the maximum amount that you want to spend. A real estate agent might try to convince you to buy a more expensive house than you can afford; do not fall into this trap.

If you are meditating on how to get approved for a home loan, you need to make sure that your credit is good. When you are ready, you should meet with a mortgage lender.

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