A home is one of the most important assets we have. Since it is expensive, we need funds to buy a home. The first step to getting your dream home is to get your mortgage approved by a lender. Since it will be your first home-buying experience, we realize that you may need assistance understanding how the home loan works, how to apply, how much credit score is needed, etc., for getting a home loan.
How to Get Your Mortgage Approved?
Mortgage is huge, so the lenders have strict lending rules. We suggest the best tips for first time home buyers and ensure they get a home loan.
1. Check Eligibility
Pre-check whether you will be approved for the mortgage before applying for a loan. Know how much loan you need, your monthly income, mortgage loan interest rate, and loan tenure. Accordingly, check the loan eligibility criteria and address the same promptly to ensure hassle-free approval.
2. Work On Your Credit Score
The mortgage approval and the interest rate directly depend on your credit health. If you have a good credit score, your lender will not take time to approve your request. Before applying for a home loan, you should start working to improve your credit score. Different lenders have different benchmarks for the minimum credit score. A score of more than 660 is considered a good score.
You should first get a copy of your credit report to increase your credit score. Due Factory can provide you with the same for free. If your credit score is low and not good enough to get a loan approved, try to improve it. To improve the same, pay all your dues, lower your credit utilization ratio, improve your credit mix, avoid applying for too many loans, and more.
3. Make a Heavy Down Payment
It may be challenging to pay a heavy down payment when purchasing a home. Still, if you can pay a whopping down payment to purchase a home, it will be easier to qualify for the mortgage. You will borrow a lesser amount from the lender, making it easier to qualify for a mortgage. It will also help you keep the EMI lower, paying less interest over time, etc.
4. Don’t Apply for Other Loans
When considering a house, it is better not to make big purchases and apply for other loans. It will add to your debt load. Avoiding other debts is essential as lenders evaluate your ability to afford a home loan according to the total debts you own. Having other debts will increase your debt-to-income ratio, where most of your monthly income will go into paying for the debts. While some debts like credit card payments may be unavoidable, steer clear of personal loans, auto loans, etc.
5. Pay Current Debts
It is also essential to pay down the existing debts. It will lower your credit utilization under 30% and improve your credit score. The same can make the mortgage approval easier. While lenders prefer borrowers with diverse credit histories, certain debts like unsecured credit cards are considered riskier.
6. Make Your Spouse or Parent a Co-Applicant
Make your earning spouse or parent co-applicant. This way, you can increase the chances of getting a loan. The lenders will consider the clubbed income of you two and enhance your eligibility.
7. Have a Stable Job
Do not leave your job when you apply for the loan. Any change in your employment status can affect the mortgage approval. The lenders feel more confident when they know you have a stable job and you can repay the amount with your salary. Quitting a job may obstruct the whole mortgage process, and your eligibility might be compromised.
Wrapping Up
A mortgage loan is one of the best solutions to fulfill personal goals. You can step closer to your mortgage loan approval with the abovementioned first-time home buyer guide. If you want more advice to make your financial life smoother and easier, consider speaking to Due Factory.
Disclaimer: This article provides a general guide to the subject matter. You should take a professional advice about your specific case.
FAQs
1. How much credit score is needed to get a mortgage approved?
Ans. A great credit score is the most critical thing for getting a mortgage. Every lender has a different selection criteria. A score of more than 660 is considered a good score.
2. What if I get disapproved for a loan?
Ans. If your home loan is not approved due to low income or lower credit score, consider looking for a less expensive home. Also, try connecting with another lender.
3. How much mortgage can I take?
Ans. The loan amount depends on your income, debt level, etc. As a thumb rule, you should try to borrow less than 30% of your net income. Also, consider your monthly expenses.
4. Which factors does a lender consider for approving a mortgage?
Ans. The lenders look at your debt-to-income ratio, credit score, income, down payment, etc., to determine whether you can repay the loan.
5. Does the down payment amount play a role in mortgage approval?
Ans. The larger your down payment, the better it is for your mortgage application. Putting more money up front will also lower your monthly burden.