5 Ways to do so
Shopping for the perfect new home is exciting. From selecting the perfect neighborhood to planning your new paint colors, there are so many fun steps along the way. But before you start narrowing down your options and attending open houses, you may want to think about applying for a mortgage. Here are a few ways to increase your odds of getting a mortgage, so you can start shopping for the home of your dreams.
Fix Mistakes on Your Credit Report
Banks rely on your credit report to tell them how likely you are to pay back your mortgage loan. If there are mistakes on this report, then the bank will not get a true, accurate sense of your creditworthiness. So, a few months before you apply for a mortgage, pull a copy of your credit report. If there are entries on the report that are not accurate or are not your own, then call or email the credit reporting bureau to dispute those entries. They will usually remove the false entries quickly and easily.
Raise Your Credit Score
Every bank has slightly different requirements, but for a conventional mortgage, most banks want you to have a credit score of at least 620. Of course, the higher your score, the greater your odds of approval. In the months before you apply for a mortgage, make sure you pay all of your bills on time. Consider paying down other loans you may have, such as a car loan or a personal loan. Both of these steps should raise your credit score, thereby increasing your chances of mortgage approval.
Save a Substantial Down Payment
Most banks will want you to have a down payment of 10% of the home's value before they issue you a conventional mortgage. Down payment requirements are lower for FHA and VA loans. But regardless of what type of mortgage you take out, it's always a good idea to save a larger down payment. This means the bank will ultimately be lending you less money, which increases your chances of mortgage approval.
Consider FHA and VA Mortgages
As mentioned above, FHA and VA mortgages usually have lower down payment requirements than conventional mortgages. They also have lower credit score requirements. There are a lot of misconceptions about who is eligible for these mortgage programs.
FHA mortgages are not just for first-time homebuyers. VA mortgages are available not only for active military members, but also for veterans, and, in some cases, the spouses of veterans. Ask your bank about these programs to see if you are eligible. If you are eligible, applying for an FHA or VA loan may increase your chances of getting a mortgage.
Apply at Smaller Banks
It is always a good idea to apply for a mortgage at several different banks; but more specifically, you should apply with at least one smaller, independent bank. Smaller banks are more willing to work with you, revisit certain parts of your application, and manually review certain aspects of your finances in order to help you qualify for a mortgage. And yes, many small banks work with the FHA and VA to offer mortgages through these programs.
Getting a mortgage can be one of the most stressful parts of shopping for a home. However, if you follow the tips above, you will increase your chances of having your loan application approved. Before long, you'll be attending open houses, choosing decor, and scheduling home inspections. Good luck!