Tip For Getting Approved For Your First Mortgage

Posted on: 20 April 2016

One of the most important aspects of purchasing a home is securing your financing. Getting a home loan is a long process, and sometimes the approval won't come until days before you are supposed to close on your new home. This can make home buying stressful, since you will lose the home if your mortgage falls through. Here are some tips that will help make sure your mortgage application is approved.

Fix Blemishes In Your Credit History

Your credit history will be looked at closely by your mortgage lender, with them looking at things such as your credit score and existing debts. Before applying for a mortgage, have your credit report pulled and try to fix any blemishes that could be on it.

For example, you may have an outstanding medical bill listed that you were not aware of. There may be a debt that you paid off, but it's still listed on your credit report. Work with the credit reporting agencies to fix any potential problems before your mortgage lender sees it.

Improve Your Debt-To-Income Ratio

Another aspect of your finances that a mortgage lender will look at is your debt-to-income ratio. It's a percentage that is determined by taking all of the debts that you owe and dividing it by your monthly income. For example, if you have an existing car payment of $500 per month and you make $3,000 a month, you would have a debt-to-income ratio of about 16.6%.

Mortgage lenders understand that you may have some existing debts, but you could have difficulty getting a mortgage if your debt-to-income ratio is above 43%. This is because applicants with a high debt-to-income ratio could have trouble repaying their loan.

If you pay off existing debts you have before applying for a mortgage, your debt-to-income ratio will be much smaller. It may be time to pay off a debt in full that you have the cash for, even if you have a really great interest rate that has allowed you to pay it off slowly.

Purchase A Quality Home

You may be tempted to buy a home that needs some improvements because the sales price will be lower. Unfortunately, the quality of the home could affect your mortgage lender's willingness to approve your loan.

If problems are found during the appraisal, such as water in the basement or an issue with the foundation, the bank may decide to decline your mortgage because of these problems. Their fear is that if you default on the mortgage, the mortgage lender will be stuck with a property with problems, making it undesirable. Picking a home that is great condition can help prevent the mortgage being declined after the appraisal.