When you start your home-buying journey, you’ll notice advertisements of beautiful homes accompanied by happy families that make it seem like an abundance of lenders are waiting to hand you the keys to your new home.
The truth is that getting approved for a mortgage is not always easy, and getting financed for such large amounts of money can be risky. If your home-buying fantasies have been interrupted by application denials, it’s time to take control of your borrowing power and find out what you can do to turn those “no’s” into a “yes.”
1. Document Your Income
Borrowers mistakenly downplay the importance of a stable income history, especially if they have a high credit score or large bank balance. No matter how favorable your credit and financial status may seem, you will be subject to income scrutiny. Be prepared to prove your income by providing tax documents for the last two and three years and paycheck stubs from the past few months. You may also be asked to provide a list of all your debts, including auto loans, credit cards, alimony, and student loans, and a list of your assets, including investment accounts, auto titles, real estate, and bank statements.
In addition to proving that you have adequate income to cover the loan, lenders will verify that you’ve been working in the same field for at least two years – the longer you’ve been working for the same employer, the better.
2. Shine Up Your Credit History
Maintaining a positive history while you apply for home loans is especially important. Lenders want to see that you have a good record of paying your bills on time. Before you apply for a mortgage, review your credit report. Give your credit a boost by keeping your credit card utilization below 30%. If you have any past debts, pay them. Lenders want to see a flawless credit history for the past 12+ months – the longer you go without a negative mark on your report, the better.
Remember that lenders may re-check your credit score during the application process, so make sure all your accounts are on time and current and avoid any other large purchases that could affect your score until you receive approval.
3. Two is Better than One
If you don’t have income high enough to qualify for the type of loan you need, a cosigner with an adequate amount of disposable income to be considered on your mortgage may help your approval rating – regardless of whether this person will be helping you make your payments or living with you. Sometimes, a cosigner with a positive credit history can help someone with less-than-perfect credit. However, he/she should remember that they guarantee your lender that the mortgage payments will be paid in full and on time.
4. Offer a Larger Down Payment
If you can pay for a percentage of the home on your own, your application for the rest of your home financing may tilt in your favor. The larger your personal investment in the house, the less likely you will walk away from the property and let it go into foreclosure.
Having a significant amount of cash is also a strong indicator of how you handle your finances. Banks don’t just want to hand anyone a loan; they want to provide financing to people who are guaranteed to repay them.
5. Consider a Smaller Loan
While your pre-approval may indicate that you qualify for a loan up to $250,000, you want to tread carefully in asking for the highest loan amount. In fact, the closer you get to your limit, the more difficult it is to get approved.
If you don’t qualify for the mortgage you want and aren’t willing to wait, try setting your sights on a less-expensive property. Consider a townhouse instead of a house, accept fewer bathrooms and bedrooms, or move to a neighborhood further away to give you more options. For a more drastic approach, consider a different area of the country where homes are more affordable until you can trade up or build your financial history.
