How to Improve Your Chances of Getting a Home Loan
Introduction
The home-buying process is stressful. You have to figure out what you can afford, how much house you can buy, and how to get a mortgage. If you don’t get it right the first time, it may take years for you to qualify for another loan. Do your research and be prepared before you start looking for your dream home — this will help improve your chances of getting the mortgage that fits your needs!
Improve your credit score
If you want the best chance of getting approved for a home loan, you’ll need to improve your credit score. Getting a copy of your credit report from the three main credit bureaus is the first step. If there are any errors on your report, dispute them with the bureau and wait to hear back. Make sure that all accounts are listed accurately and that there aren’t any inquiries by other companies on your account (this will lower your score).
If you have any debts that can be paid off, do so as soon as possible. Try to pay more than just minimum payments if possible—but don’t get too aggressive with debt reduction because it could negatively impact your overall score once again! After completing these steps, use credit sparingly—and pay those bills on time each month!
Pay down your debts
Another thing that can affect your chances of getting a home loan is the amount of debt you have.
If you already have a mortgage or other loans on your credit report, this can hurt your chances of getting approved for another loan. This is because lenders look at how much debt you have as compared to what they think you can afford (your debt-to-income ratio). If they think there’s too much risk in lending money to someone who has high levels of debt and low income, they might not approve your application.
However, paying down some of those debts may make it easier for lenders to approve your application if:
- It shows that you’re committed to paying back whatever debts are owed within 30 days; therefore reducing risk for the lender.
- You decrease the total amount owed from all creditors.
Talk to a lender before you start home shopping
As you start to look for a home, it’s important to know what kind of loan you can qualify for. Lenders can help you figure out whether or not you’re eligible for a particular type of mortgage and how much house you might be able to afford.
Once you’ve decided on the right lender, they will give you a pre-approval letter that states how much they think they could lend to help buy your home. This is also called an “appraisal” or “qualification”.
When shopping around for a property or getting pre-approved by one lender, be sure to ask them about their rates and fees as well as other costs associated with getting approved before signing any paperwork or committing to anything that would tie up your money (like putting down an earnest deposit).
Cut unnecessary costs
- Cut down on unnecessary costs.
- Increase your income.
- Make sure you can afford the monthly payments.
- Have a contingency plan if things go wrong.
Beef up your savings
It’s a good idea to have a six-month emergency fund stashed away. This is money that can be used to cover unexpected bills or other expenses before you borrow more money or dip into your line of credit.
It’s also wise to have savings for closing costs, which are the fees related to buying or selling a home and tend to run between 2% and 5% of the purchase price (though sometimes they can go up). Closing costs include things like appraisals, inspections, title searches, loan origination fees and government recording charges. If there are any outstanding debts on your current home (such as an old mortgage), there may also be closing costs associated with those debts that need to be paid off before you close on your new mortgage—but this varies by lender.
Don’t use all of your savings to buy the home
Although buying a home might seem like one of the most exciting things you’ll ever do in your life, it’s also an investment that requires careful planning and financial discipline. You need to have enough money to cover the down payment, closing costs, and moving expenses—and not just for yourself but for everyone who is going with you: spouse or partner; children; parents if they’re helping out; any pets.
It’s also important to have a contingency fund for unexpected costs such as repairs or remodelling projects that may arise later on down the road—as well as at least three months’ worth of living expenses in savings so that if something happens while you’re living in this new place (i.e., getting laid off), then no matter what happens next financially speaking there will still be enough cash flow coming in each month until a new job comes along which allows for greater stability again financially speaking.
Apply with a cosigner
Another option is to get a cosigner. A cosigner is someone who agrees to be responsible for the loan if you don’t pay. It’s usually your parent or another relative, but it can also be a friend or even an employer.
The lender will check the credit history of both applicants, and they’ll look at their income and assets as well. If your cosigner has good credit and earns enough money, then this strategy might work for you.
Joint applicants may help you qualify, depending on their income and assets
Joint applicants may help you qualify, depending on their income and assets. Joint applicants must have the same credit score. Your credit score is a number between 300 and 850 which reflects your financial history. If you or your joint applicant has too many late payments or other negative marks on their credit report, it will hurt your chances of getting approved for a loan.
Joint applicants must have the same debt-to-income ratio (DTI). DTI uses an equation to determine how much of your income goes toward paying down debt like mortgages, car loans, student loans and credit cards during a certain period of time (usually three months). It’s important that each joint applicant stays within safe limits when calculating DTI; otherwise, they won’t be able to get approved for a home loan together because their combined DTIs would be too high compared with what lenders allow borrowers in general — currently 45 per cent for most cases — which could make them ineligible for borrowing funds from banks at all.
Lenders want proof that you can repay the loan; being well-prepared can help ensure you get the mortgage you want
Lenders will want to see proof that you can repay the loan. Be as well prepared as possible:
- Have a good credit score and savings history. Lenders consider both your income and your credit when deciding what rate to offer. They also want to know that you have enough money saved up for a down payment, closing costs, and any unexpected expenses during the first few years of home ownership.
- Show that you can afford monthly payments on top of other bills like rent or student loans—and still have extra cash left over at the end of every month!
Conclusion
We hope that you can use these tips to improve your chances of getting a home loan. Remember, it doesn’t hurt to talk to lenders before you start home shopping so that they know who will be applying for the mortgage and what their income levels are. That way, when you do find a house that meets all your requirements, you’ll be ready to get preapproved before making an offer on it.