Look at your credit report and ensure it’s accurate. At annualcreditreport.com, you can get a free copy once per year. By double checking it, you can guarantee there is nothing incorrect or something you may have forgotten about that would affect your ability to be accepted for a mortgage. This will give you the chance to make sure everything is accurate and fix any stains on your report if they’re there.
Pay down debts and use cash for purchases. An important factor that is weight when deciding on your mortgage eligibility is your Debt to Income ratio, DTI. DTI is the measure of your monthly debt repayments as compared to your monthly income. Generally, the maximum allowed is 41%, but you’ll want to come in no higher than 36%. The lower, the better, so whatever you can pay down beforehand is essential, and not adding any more debt beforehand is significant as well.
Try to put down at least 20% on your mortgage. Not only is 20% the widely considered “sweet spot” for a mortgage down payment, but it also ensures you won’t have to take out mortgage insurance, which is another added cost that mortgage lenders will require on lower down payments when the risk is too high for them.
Get your credit score as high as possible. When you check your credit report, you don’t only want to look at details, but the actual score too. While the minimum often accepted is 580, you’ll want to bring your score up to at least 620. The higher, the better, but if you can get above 620, you’ll find it much easier to get accepted.
The best ways to improve your credit score starts with your credit cards. Paying them down to 15% or lower is the sweet spot, and if you find damaging or false information on your report, dispute them. If you have outstanding debt, see if you can negotiate a deal to pay them off at lower amount upfront and have them deleted. Anything you can do to remove negative credit transactions is ideal.
Depending on the type of loan you’re looking for, and your situation, you may not need a down payment for your mortgage. If you’re a veteran, you may qualify for a VA loan, which has no downpayment requirement. So plans will offer very minimal down payments, though usually, they’ll come with a demand for mortgage insurance, extra cost to you and protection for the lender.
Another good tip is to have savings that will cover several months of mortgage payments following the sale. If you’re emptying the cupboards to make your down payment, that’s a worrying sign to many lenders. By showing lenders you have money still in the bank and would be ok if anything came up, and you lost your income for a couple of months, you’ll be more likely to secure your mortgage and get a better rate.
Talk to various mortgage lenders. Even if you did research and have your heart set on one particular lender, by getting quotes from multiple lenders you have the potential to use them against each other to try and get the best deal. Three or four quotes will help you negotiate a better deal, or choose the right offer.
Double check you have the right type of mortgage for you. Look over every detail, and ensure you have the right choice for your needs and comfort. If you’re a veteran, aim for a VA loan, and if not make sure you’re ok with the interest rate and whether you want one that may fluctuate after a fixed amount of time.
Gather all your documents beforehand, so that you don’t have to go looking for something after the fact. This will help expedite the process and make sure it goes as smooth as possible.