Lenders decide whether or not to give you a mortgage to buy your home based on several criteria. If you know something of the criteria they use, you can improve your chances of getting a mortgage by making sure you are a good match for the lender. If you are turned down by one lender, that can have a negative impact on how other lenders may consider your application. Therefore, it is best to apply for a mortgage only when you are pretty sure you will be accepted. Here are some ways you can improve your chances of getting your mortgage.
Check your credit history
Lenders use data from credit reporting agencies to assess your risk. The three biggest credit reporting agencies are Experian, Equifax and TransUnion. All of which are publicly traded companies, rather than state or federal agencies. However, because of the sensitive nature of the data they accumulate, the activities of credit reporting agencies are tightly controlled by the federal government. One of the things they are legally obliged to do is let you access your own credit record free of charge. Anytime you have been turned down for credit, or once a year routinely. Outside these circumstances, you can request your report, but you will have to pay a small fee.
It is highly advisable to get your credit reports before making any mortgage application. Not all lenders use all three credit reporting agencies. Also not all entities that offer credit submit details to all three credit reporting agencies. Therefore, you need to get your report from all three. Therefore you can expect to see differences between the three reports.
Study each report carefully to ensure all entries on your record have been recorded correctly. If you notice any errors on a report, contact the credit reporting agency immediately, offering any proof you have that the information in incorrect. Delay your mortgage application until errors have been fixed.
Reduce the number of credit and store cards you have
You may be able to consolidate your credit card balances into just a few cards. This can help in your mortgage application. Some lenders will use your current credit availability when assessing the risk of lending to you. The more cards you have, the higher your credit availability will be. For example, say you have ten cards each with a limit of $5,000. That gives you a credit availability of $50,000 minus what you already owe. Some lenders would treat your application as if you owe $50,000. Remember to let the card issuers know that you are no longer going to use their card, and follow their procedures for terminating your account.
Reduce your current debts as far as possible
If you already have a lot of debt, that can make it harder to get a mortgage. Pay off any existing debt as much as you can.
Use an independent mortgage adviser
An independent mortgage adviser is one who works with many different lenders (some advisers work only with a single lender). Find an independent mortgage adviser who does not charge you any fees. An independent mortgage adviser will work with you to establish which lender is most likely to agree to your application. That means you reduce the risk of being refused, which, in turn, can make it difficult to borrow from another lender.
Calculate how much you can afford to borrow
Use a mortgage calculator to work out how much you would have to repay each month for different mortgages. The monthly repayment will be based on how much you borrow, the mortgage term, and the interest rate. Ideally, your monthly repayment should be no more that 35% of your disposable income (that is how much you have left over each month after meeting all existing commitments).
Calculate how much you can afford as a down payment
You will be expected to make a substantial down payment on any property you plan to buy with the help of a mortgage. Most lenders will place a percentage cap (LTV) on how much you can borrow. This cap will be around 80% of the purchase price, meaning you would have to be able to pay the other 20% up front. It is harder to get mortgages where the LTV is over 80%, and such loans tend to have higher interest rates. Furthermore, they may come with additional restrictions such as requiring you to take out mortgage protection insurance. The lower the LTV, the better your chances of success.
By following the tips above, you will greatly improve your chances of being accepted by a mortgage lender. While it does require a bit of time and effort to undertake some of these tips, doing so can actually save you money as well as making you a better candidate for a mortgage