How do You Improve Your Chances of Being Approved for a Mortgage?
Buying a home is one of the largest investments you will make in your lifetime. Most of us will need a mortgage to help us become homeowners and while there is no guarantee that you will get approved for the mortgage that you want, there are steps and actions you can take beforehand to make yourself less risky to potential lenders. Keep reading to find out the best way to improve your chances of landing a mortgage.
Always Check Your Credit Report
The first thing lenders will check is your credit report. This is a detailed report of your credit history. You should be familiar with your own credit report and score if you are considering applying for a mortgage. Your credit score will determine whether or not you qualify for a loan and at what rate.
Look For Mistakes
Once you get your credit report, you should take a look at all the details on it and make sure there are no errors, as these could negatively impact your credit. You should watch out for any of the following:
- Debts that have already been paid or discharged
- Information that does not belong to you due to a clerical mistake
- Information that is not yours due to identity theft
- Information from a former spouse that shouldn’t be there
- Information that is out of date
You should check your own credit report six months before you plan to shop and apply for a mortgage so that you have time to fix mistakes. If you do find a mistake in it, contact the credit agency as soon as possible.
Work on Improving Your Credit Score
Your credit score is the single number that lenders will use to evaluate your credit risk and determine how reliable you are at repaying a loan. The higher the credit score you have, the better you will look as a borrower. To get a higher credit score, work on paying off all of your debts, paying your bills on time and keeping your credit card and revolving credit balances low.
Decrease your Debt-to-Income Ratio
The debt-to-income ratio compares the total amount of debt that you have to your overall income. It’s calculated by dividing your total recurring monthly debt by your gross monthly income and shown as a percentage. Lenders look at this percentage to measure your ability to manage the payments you make each month, and it will also determine how much house you can afford.
Make A Larger Down Payment
A large down payment will show your lender that you possess the ability to save large amounts of money. It will reduce the loan-to-value ratio, and this will increase your chances of getting the mortgage that you want.
While there are tight lending practices when securing a mortgage, there are things that you can do to increase your chances of qualifying for a mortgage, especially if you get a head start. If you have any questions about your mortgage, contact Colin Bruce, a mortgage specialist in Edmonton.