When applying for a mortgage, lenders take deep look into each borrower’s financial history to determine if they will approve the loan. The housing crisis has caused lenders to be more cautious with potential borrowers. Leniency and flexibility that may have been offered in the past may not be offered when applying for a loan today.
To give yourself the best chance of being approved for the mortgage you need, there are a few things you want to avoid doing during the process. By following these pointers from North Georgia Lending, you will have the best chance of being approved for your next mortgage.
Taking Out Additional Loans
When you apply for a mortgage, lenders will review all the outstanding debt that you have such as auto loans, student loans, and any personal loans. Your total debt is then weighed against your monthly income. This is called the debt-to-income (DTI) ratio and is one of the most important factors when underwriting a mortgage.
If you plan on purchasing a home in the near future, you will want to avoid taking on any new debt. If your debt to income ratio becomes too high, you may hurt your chances of being approved. Postpone any new loans you may want or need until you are approved.
Your credit score is another important factor when reviewing a loan application. Most loans require you to meet a specific credit score requirement. The stronger your credit score, the less of a risk you will appear to be to your lender. Borrowers with lower credit scores may even be asked to provide a larger down payment as a condition of approval. Alternatively, borrowers with higher credit scores may qualify for loans with lower down payment requirements than are traditionally needed.
Late credit card payments, student loan payments, car payments and more can have a major impact on your credit score. It is important that you continue making all of these payments on time to ensure that your score is not negatively affected.
A steady employment history is something your lender is going to want to see. A job change is often out of your control but if you have a choice in the matter, it is best to avoid the change until after your mortgage is approved. If you get a new job in the same field you are currently in, with higher pay, you may not encounter any issues. On the other hand, if you make a major career change, your lender may see this as a cause for concern.
Spending Your Savings
With nearly every mortgage, there is a down payment requirement. Very few loans such as VA loans offer 100% financing. Depending on the type of loan, the down payment requirement can range anywhere from 3.5% to 20%, or even higher. As mentioned above, if your credit score is on the lower side, you may be asked to make a larger down payment that you had originally anticipated. Lenders may even want to see additional cash reserves.
You will want to ensure you have adequate savings to cover the down payment requirement and any additional up-front costs such as closing costs and mortgage insurance premiums. Don’t spend your savings on unnecessary purchases such as lavish vacations.
By following these basic guidelines, you will have the greatest chance of securing the mortgage you want. Contact North Georgia Lending in Cumming, GA today to find out more on the mortgage approval process and how you can get approved for your next mortgage!