See if you can improve in any of these areas and increase your chances of getting approved or get a better rate on that mortgage loan, whether you are buying a new home, refinancing or getting home equity loan.
Stash Cash.
Mortgage lenders evaluate your ability to repay a loan, and one of the factors they consider is the size of your cash reserve accounts. The more liquid cash you have on hand, the more comfortable the lender will be with your situation. Ideally, your goal should be between three and six months worth of current expenses in a liquid vehicle such as a savings account or money market account.
Pay off some debt.
Your debt-to-income ratio is a calculation that lenders evaluate when underwriting your loan application. Therefore, the more debt you have the less disposable income you have every month. Mortgage lenders typically do not like to see such ratios above 35-45%, so it’s a great idea to eliminate as much debt as possible so you can demonstrate low figures.
Get your credit report first.
Since all lenders eventually obtain a copy of your credit report during the underwriting process, it’s important for you to get a copy first. Use this to correct any errors that may present a problem with the lender beforehand. Also make a note of any negative entries on your report so you may prepare a response to the lender’s inevitable questioning regarding such notations.
Stay at your job.
Since one of the factors lenders consider is your length of employment, it is in your best interest to avoid changing jobs before or during the approval process. A recent job change may make a mortgage lender nervous about your ability to consistently repay the loan since you may not be entirely familiar with how the potential changes in your employment will effect your take-home pay.
Prepare your documents ahead of time.
Mortgage Lenders always request documentation as part of the application process. By having those documents ready in advance, you will speed up the mortgage approval process and avoid the headache of searching for paperwork. Lenders will also be impressed with your speedy responses and submission of all necessary documents in a timely fashion.
Avoid “Credit Repair” services.
Many people with credit that is less than perfect are attracted to organizations that offer to fix your credit in record time and improve your overall score. This is not always the case. When lenders see on your credit report that you are working with a consumer debt counseling company they actually look less favorably upon such notations. To the lender, the only way to interpret this information is to assume the borrower cannot pay the existing bills, therefore how could they possibly afford a mortgage payment? Your best bet is to work directly with the credit card/loan companies to arrange a repayment plan. Even if you are looking for a refinance or home equity loan, avoid credit repair companies.
Respond to questions immediately.
When underwriting your mortgage application, lenders will almost always come back with various questions or concerns regarding certain things like your financial history, employment history, credit report, etc. By responding to them immediately, it demonstrates your willingness to cooperate and motivation to proceed with the loan. This can only make you look that much better to the lender, thereby increasing your chances of an approval.
Do not move money from one bank account to another.
Any transfer of money from one account to another generates a paper trail that will require further explanation when the mortgage company receives copies of your account statements. Even if the transfers are within your own accounts, try to avoid moving the money if at all possible. This is especially true when moving money from a savings account to a checking account because it may appear to the lender that you’re preparing to use that money.
Get disability insurance.
The largest percentage of home foreclosures in the United States come from injuries and disabilities that leave a person temporarily unemployed for any length of time. By proving to the mortgage company that you have a private disability insurance policy with a high enough benefit amount to pay the monthly bill, they are more likely to consider approval.
Avoid purchasing large items.
Mortgage lenders will consider many aspects of your financial situation when evaluating your application, so available cash reserves and credit balances are important to monitor. By putting a sizable purchase on a credit card or store credit account, you will increase your debt-to-income ratio, thereby potentially threatening your approval and/or interest rate. By purchasing with cash, you are spending available reserves that lenders would rather you have on-hand to pay the monthly bill.
Be flexible.
A large portion of mortgage applications receive preliminary or conditional approval pending certain requirements are met. If your lender returns with such requirements or requests you should be open to accommodating them, provided of course that they are justified and legitimate. Your willingness to work with the lender to satisfy any issues they have will only benefit you by demonstrating your desire to do what needs to be done.
Be honest.
Lenders will conduct a significant amount of background checks once they receive an application for a mortgage, and those checks may reveal things about you that you thought would remain secret. By intentionally omitting or falsifying material facts about you or your situation, you threaten your chances of approval and even risk criminal charges.
Request that the credit bureaus NOT accept unauthorized inquiries on your report.
If you’re like many average Americans, you receive countless “pre-approved” credit card solicitations and loan advertisements in your mailbox every day. This is because these companies have software that scans consumer credit reports based on criteria that they feel will result in a list of good potential new customers. Although these inquiries may not directly lower your credit score, it does indeed show up when a mortgage company pulls a copy of your report. Your best option is to prevent these companies from accessing your credit report altogether.
Get rid of any collection accounts.
If your credit report shows that you have any outstanding debts that are currently in collections, you will most likely be required to pay off those balances to get approved for the mortgage. Obviously the better option is to pay off such collection accounts prior to actually submitting your mortgage application.
Understand the Loan To Value (LTV) Ratio.
Part of the decision-making process used by the lenders is an evaluation of the LTV ratio. Very simply, this ratio is the difference between the value of the property and the size of the loan. Since lenders are assessing their risk of loss, they would like to see the lowest possible ratio because it represents an easier time recouping their loan in the event that the borrower defaults on the mortgage payments. If you are getting a home equity or refinance loan, a home appraisal will help you determine this.
Deal only with a specialist.
To increase your chances of a smooth application and approval process, it’s best to find a mortgage lender or broker who is a specialist in your particular situation. Avoid brokers who are simply generalists because there may be a learning curve they have to overcome in order to appropriately serve your needs. This will waste time and could potentially threaten your chances of getting accurate information and a quick approval.
Consider a co-signer for your loan.
If your credit is less than perfect, one of the ways you may increase your chances of obtaining approval is by adding a co-signer to your loan. Obviously this may be more difficult than it sounds because you’d be asking another person (who may not have a direct interest in the property) to agree to repay the loan in the event that you do not. However, if someone is willing to act in this capacity then it may increase your chance of approval.
Do not close any accounts during the approval process.
Since lenders are evaluating your present financial situation, the closing or canceling of any existing accounts, regardless of balance, may trigger a red flag with the lender. If you want to close any accounts or cancel any contracts, do this either before or after the mortgage application has been approved.
Inform the lender of any recent changes in status.
If you are aware of any significant changes to your current situation in the few months prior to, or during, the mortgage application phase, you should always report them to the lender rather than wait for the lender to ask you for details. This demonstrates your willingness to provide information, and avoids any potential delays further down the road. It also guarantees that the lender will have the most current and accurate information regarding your situation. This is important because the timing of the lenders credit inquiry could determine how up to date the information will be.
Continue your timely payments during the application process.
Many lenders will pull an additional copy of your credit report just prior to closing to check for any recent inconsistencies or changes. By continuing to make your regularly scheduled monthly payments, you are also making sure that nothing new will show up that could require further explanation. A single late payment during the application phase of the mortgage process could create delays and even threaten your final approval. Especially, if you are refinancing or looking to get a home equity line of credit, you must continue to make your home payments on time.
Understand that Business Is Business.
By keeping your emotions checked at the door and reminding yourself that the mortgage company’s only concern is the risk to their money, then you will ensure yourself a much smoother process. Do not become upset or angry if the lender requests additional documentation or has more questions that need clarification. This is not a method of personal attack by the lender, nor should it be taken personally when you’re asked for such things. Requests for additional information are not an indication that the lender does not like you, but rather an indication that they are interested in learning more about you.
Buy life insurance.
Although life insurance is not a requirement for most mortgage lenders, it is definitely something that many will take into consideration when evaluating your mortgage application. By demonstrating that you have enough life insurance to cover the mortgage, there is higher likelihood that they will approve your application because they know there is less of a chance they’ll have to go through the difficult process of handling your mortgage if you were to suddenly pass away.
Show an interest.
Stay in constant communication with the lender and/or broker throughout the entire application phase. Your daily calls or emails will be a constant reminder that you are motivated to get the process completed, and it will also guarantee that your file is not pushed aside by the broker or lender.
Remember that you are in control.
To keep the lenders and brokers on their toes, and to help make sure you’re getting the best possible deal, it is important to make sure they understand you are not averse to canceling your application and taking your business elsewhere. The lender and the broker both want your application approved, so they should be willing to work with you every step of the way. Do not feel obligated to continue with a lender or broker just because you’ve worked together for a few weeks. If you’re not getting the service you want and deserve, then politely inform them that you are unsatisfied and are going elsewhere.
Educate yourself about the process.
By familiarizing yourself with the mortgage approval process, you increase your chances of getting an approval because you can follow the steps with the lender and will be better prepared for any potential questions or concerns that arise at every new stage. The more you know about the loan application and approval process, the more you can become involved from start to finish, thereby making sure that nothing is left to chance. There are many differences between purchase home loans, second mortgage or home equity loans and refinance loans. The more you know, the more you will be able to make sure you are getting a loan that you can afford and pay off quickly.
—————————