How to Get a Mortgage
For many people, getting a mortgage approval is the first step to realizing their dream of owning a home. Unfortunately, record numbers of people have defaulted on their homes in the last five years, so banks aren’t lending money as freely as they did a decade ago. In spite of this fact, however, it is still possible to get a mortgage approval if you follow the steps below.
1. Maintain An Excellent Credit Rating
Your credit score is the first thing lenders look at when deciding whether to loan you money. When applying for a mortgage, your rating should be 675 at a minimum and above 700 if at all possible. To keep your credit within this range, make sure that you are paying your monthly bills by their due date every month, and if you don’t have any credit cards, consider applying for some to help you build your score. In addition, it is generally a good idea to obtain a copy of your credit history prior to applying for the mortgage so that you can check it for accuracy.
If you don’t have any credit and don’t have time to build it, don’t despair. If you can prove to the bank that you pay your car insurance, utility bills and phone bill promptly each month, you may still be able to get a mortgage approval. Even if you have poor credit, it may be possible to obtain a mortgage if you have a friend or family member who has excellent credit and is willing to co-sign on the loan for you.
2. Document Your Monthly Budget
Because banks want to make sure that you will still be able to pay all your bills once you acquire a mortgage, your debt-to-income ratio is another important consideration for them. Before you talk to a mortgage broker, gather copies of your bills, paycheck stubs, and three years’ worth of tax returns. Next, determine what percentage of your income goes towards bills. Banks like to see no more than 36 percent, excluding basic living expenses; if your bills account for more than that, you may have to pay off some loans or credit card debts before you can receive mortgage approval.
3. Determine How Much You Can Afford
Don’t make the mistake of overestimating the amount you will be able to pay for your home. Realistically examine your income, and plan on spending no more than 28 to 33 percent of it on your house payment. The higher your bills are, the lower this percentage should be. Once you have determined how much of a mortgage payment you can handle, bring this number into your mortgage broker so that you are not tempted to make a bigger investment than you can afford.
4. Provide Proof Of Employment
In order to make certain that you will be able to pay your mortgage in the future, your lender will want to be sure that you have a stable income. To prove this, expect to provide a detailed employment history and a copy of your tax return or at least three months’ worth of pay stubs. Keep in mind that your bank will probably want to see that you have been employed at the same job, or at least in the same industry, for two years or more. If this is not the case or if you are self-employed, you may have to supply the bank with additional information.
5. Plan On Making A Down Payment
Most mortgage lenders will require you to make a down payment of at least 10 percent of the price of your home; however, if you want to avoid costly private mortgage insurance (PMI), you will need to pay at least 20 percent as a down payment. If you can make a higher payment, you will be even more likely to obtain mortgage approval. Make sure to work this cost into your budget when planning for your mortgage, and save as much money as possible for this purpose.