Deciding that it’s time to buy a home of your own is an exciting time, indeed. But what if you’re ready and lenders think that you are not? Read on for some tips to prepare yourself for the best outcome with a mortgage application possible.
- Check your credit before you apply. Know what others will see when they look. This can help you see yourself as a potential borrower and if there are errors, you can work to correct them.
- Don’t have too much debt. If your debt ratio is high, you’ll look like you’re not ready to qualify for a mortgage.
- Don’t have too much available credit. You might think it looks good on paper to have $0 balances on several credit cards as it shows you’re responsible about credit. But some lenders see that as a risk because you have the ability to get into debt. It’s good to have available credit but not too much so consider keeping lower credit limits and limit the number of credit cards you have.
- Have some money sitting in the bank. If you’ve got six months of mortgage payments put aside in a high-interest savings account, this will show you’re prepared for a rainy day.
- Have the right information available. If you’re self-employed, have 2-3 years worth of financial details showing that you’re in a good position, financially. If you’ve recently had a divorce or some other major change in your situation, be prepared to answer questions and to show evidence that you’re financially ready for a mortgage.
- Make sure you’re not setting sights too high. If you and your spouse have a combined income of less than $100K a year, don’t apply for a $600K mortgage.
- Save more than the minimum down payment. Having the minimum might be all you need but if you have a larger down payment this will increase your chances of being approved, too.
If you don’t think you look good on paper now, consider working at all of the above for another six months. The better you look on paper, the more options you’ll have (and the better your interest rate offer will be, too!)
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