Getting a home loan can be a daunting process. Lenders are becoming more strict, and they will scrutinize every data in your application to ensure that you are a low-risk borrower. Here are some ways to boost your chances of getting approved for a mortgage.
Check your credit health
Lenders will evaluate your creditworthiness by looking at your credit score. Your score will not only increase your eligibility for home loans, but it can impact the interest rate that you get from lenders. So before you fall in love with that ideal home in Grand Junction, make sure that your credit is in the best shape possible. Review your credit report and pay attention to any discrepancy so you can file a formal dispute. Depending on the type of error, it can take several weeks to have them rectified. Thus, it’s best to review your credit report at least one month before applying for a home loan. If you have a low credit rating, you can improve it over time by making timely bill payments, keeping low balances on your credit cards and paying off debts.
Save up a sizeable amount
While some lenders allow 3.5% down payment, it’s best to aim and save for a higher deposit. The larger the down payment, the less money you need to borrow. Lenders will likely treat you as a low-risk customer, and they won’t require you to pay for mortgage insurance. They may also offer you a more competitive interest rate. However, down payment is not the only expense that comes with homeownership. You’ll also cover closing costs, home appraisals, and other expenses before you finally seal the deal. Your bank statements will prove that you have the funds to cover these costs and have cash reserves to take care of unforeseen expenses.
Secure proof of consistent earnings
Even if you have outstanding credit and a big bank balance, you still need to prove that your earnings are enough to cover the monthly repayments. Lenders gauge your repayment capacity by looking at your proof of income. You should be able to provide tax returns for the last two or three years to show the amount and consistency of your earnings. Lenders look for stability and prefer borrowers who have a solid work history with the same employer. Self-employed borrowers may face greater obstacles when applying for a mortgage. This is because they often experience fluctuations in income, so it’s difficult for lenders to predict their future earnings. If you’re self-employed, you need to provide additional paperwork to show the stability and viability of your business. Some of these documents are 1040 tax returns with all schedules, profit and loss statements, and business bank statements.
Securing a mortgage can be challenging for aspiring homeowners, especially for those who are unprepared. So before applying for a home loan, make sure to review your financial health, prepare the necessary documents, and fix any potential problem that may hurt your application. By following these tips, you are a step closer to getting the keys to your dream home.