5 Tips For Mortgage Approval

Are you trying to figure out a way to buy that house, but you're worried about getting your mortgage approved?

The following are five ways for you to make that dream a reality while also obtaining the best possible rate.

1. Check Your Credit Score

Before you start to consider applying for a mortgage, you should check your credit score and see if your house goals match the hard numbers. Your credit score gives lenders an idea of your likelihood for repaying debts, so check that before you embark on the approval process.

2. Try Improving Your Score Before Applying

Before you make any decisions to apply, you should try boosting your credit score to give yourself the best possible mortgage rate.

Stop opening new credit accounts, start making your monthly payments on time and pay down the balances on your current credit cards. Your financial background is a key component for your lender to determine your worth — as well as your trust.

3. Get Preapproved For A Mortgage

To make sure you don’t overstep your boundaries and buy a house outside of your budget, you should look into getting preapproved for a mortgage.

A mortgage preapproval implies that your lender will your verified bank statements, W-2s, pay stubs and tax returns to determine just how much house you can afford. Here, your lender will have an accurate depiction of a reasonable mortgage amount for you.

See Also: The 20% Down Payment Myth

4. Get Prequalified For A Mortgage

Like mortgage preapprovals, mortgage prequalifications determine your mortgage in a more makeshift and verbal form.

You verbally tell your lender financial facts about yourself, including your credit score, monthly and annual income and other bank statements. Here, you’ll get a rough estimate for the best possible loan amount you’re able to achieve.

Both preapprovals and prequalifications will help you pick the right house for a realistic price.

5. Calculate Your Debt-To-Income Ratio

In order for your mortgage application to be approved, lenders look at your debt-to-income ratio, or DTI.

Your DTI is the percentage of your monthly pre-tax income that you have to spend on monthly debt payments plus the projected monthly payments for your new home.

It’s calculated using three steps: add up the amount you pay each month for every recurring debt other than your current rent or mortgage, then add the projected mortgage monthly amount to that and divide the total number by your monthly pre-tax income.

According to Bank of America, most lenders want your ratio to be 36% or less. The lower the ratio, the more likely you will qualify for a mortgage.