Buying a home is the American dream. If you’re a first-time buyer, you may be unfamiliar with the process of getting a home loan. The idea of buying a house sounds great, but you’re not sure if you would be approved for a mortgage. Below, we’ve discussed some strategies you can use to increase your chances of getting approved for a home loan.
What Do Mortgage Lenders Look for?
When reviewing an application, a mortgage lender is going to want proof that the borrower is financially stable and will be able to pay back the loan. Here are some of the aspects they take into consideration:
- Credit history – Does the borrower have a good credit history that’s free of outstanding debts, foreclosures, and bankruptcy? A good credit score is a must for getting a home loan.
- Income and expenses – Lenders want to see that the borrower has a low debt-to-income ratio.
- Employment history – A borrower’s employment history says a lot about their financial stability.
- Down payment – The smaller the loan is, the less risk it is to the bank.
- Other factors – These include loan term, collateral, liquid assets, etc.
How to Increase Your Odds of Getting Approved
If you’re worried about not being able to qualify, don’t panic. There are actions you can take to make your loan application look more appealing to lenders. You may not be ready to buy just yet, but with a little effort, you can put yourself in a good position for the future. Here are some steps you can take to increase your odds of getting approved for a home loan:
Improve Your Credit
If you can, take steps to limit your spending so you can improve your credit. Make payments on-time and keep your credit card balances low.
Save Money for Your Down Payment
If you haven’t already, now is a good time to start saving for your down payment. A bigger down payment reduces the loan-to-value ratio, which increases your chances of being approved. As a bonus, if you can save a down payment of 20%, you won’t have to pay Private Mortgage Insurance (PMI).
Lower Your Debt-to-Income Ratio
There are two ways you can do this. You can try to reduce your recurring debt. Or you can try to increase your monthly income. Usually, reducing your debt means spending less. Take a look at your spending and see if there are any opportunities that would allow you to cut back and save money. The other option is to increase your income. You can do this by getting a second job or picking up gig work like driving for Uber or Postmates.
Consult a Financial Expert
If your financial situation is less than ideal, you could always consider getting some help. A financial planner can help you create a budget and get your finances back on track.
Apply for a Home Loan
When you’re ready to apply for a mortgage, we’ll be here, eager as ever to help you out in any way we can. Call our office today to speak to a representative about getting approved for a home loan.