Lenders carry strict requirements when it comes to mortgage loans. The mortgage application process is more intense than most other types of loans, like car loans and personal loans. It helps to know what you need to do to qualify for the loan ahead of time. That way, when you visit the lender to apply for the loan, you’re ready.
Check your credit report. Your mortgage lender will check your credit as part of the mortgage process. If you have outstanding negative information, it will hurt your chances at getting a loan. You check your credit report for free by visiting www.AnnualCreditReport.com. You have three credit reports, one from each of the three major credit bureaus – Equifax, Experian, and TransUnion. Check all three of them to make sure they’re accurate.
Dispute inaccurate information from your credit report. It’s common for credit reports to contain some type of error, like a late payment that was actually paid on time. Use the credit report dispute process to have these types of errors corrected. The dispute process can take 30 to 90 days, so check your credit report and dispute errors six to twelve months before you plan to get your mortgage.
Pay off past due accounts. You won’t be approve for a mortgage if your credit repair contains unpaid, past due accounts like a charge-off, debt collection, judgment, or tax lien. Reviewing your credit report will alert you to any outstanding accounts. Once the account has been paid, wait a few weeks, and then check your credit report again to make sure it’s been updated to reflect your payment.
Pay down some debt. Lenders want to see your monthly non-housing debt payments at less than 10% of your monthly gross income. If you’re currently paying more than that toward your student loans, car loans, and credit cards, then you’ll need to reduce your debt before you can qualify for a mortgage loan. The more you reduce your debt, the higher the mortgage you’ll be able to get. Paying down your debt also makes it easier to afford your monthly mortgage payment.
Have two years of proof of income. Mortgage lenders want to know that you have a reliable source of income. W-2s, pay stubs, and bank account statements will be vital in proving you have enough stable income to afford a mortgage payment. If you’re self-employment, you’ll need to have two years of tax returns or a balance sheet signed by a certified public accountant (CPA) or both.
Save up a down payment. The more of your own money you can contribute to a mortgage loan, the better your chances of getting approved. Contributing a larger down payment can also help you afford a bigger house that you wouldn’t be able to afford if you didn’t have the down payment. If you have a large amount of outstanding debt or unpaid delinquent accounts, take care of those before contributing to your down payment. Once you’ve cut back on your debt payments, you can put more money toward your down payment fund.
