It’s always exciting to buy a new house or property especially if it is your first time. You can either pay in cash but many prefer taking a loan or mortgage because it can help build their credit. Many would also do this because they can’t afford to pay for the house or property in full.
Taking out a loan or a mortgage can be a little bit overwhelming if you’ve never done it before. This is why you should find the time to do some research before you get into it. If you just don’t have the time to learn about it, the best that you can do is to work with a mortgage broker.
However, even if you will be working with a mortgage broker, there are still a lot of things to consider like your financial capability, the price of the property you’re aiming to buy, and even getting your mortgage approved.
When it comes to getting your application approved, the lender will have a few things to consider. It’s pretty much the same with taking out any other loans. However, know that since the recession, lenders and have gotten stricter about approvals. Today, it’s even best that you get approved first before you go shopping for a property.
What Lenders Consider When Approving a Mortgage
Lenders consider a few things before approving any loan or mortgage application. This may vary from one lender to another. Requirements may also be different from one state to another, but generally, here are some of the factors they would look into if you apply for a mortgage.
- Applicant’s monthly income
- Credit score
- Active loans and previous loan records
- Available funds for the down payment
- The price of the property to be purchased
These are just a few things that they consider. Again, this may vary from one lender to another. You can ask the lenders about this, but usually, they’d only have these things to share with you. They may not fully disclose how they decide on approving one’s mortgage.
How to Get Approved
Now that you know what mortgage lenders would check if you apply for a loan, here are the things that you can do to improve your chances of getting approved.
- Check your credit score
Your credit score will always play a big part when it comes to any loan application. You must build your credit and best that you don’t have a record of any bad credit to better your chance of getting approved.
Before applying, what you can do is to check your credit score to assess your chances. Know that you are entitled to a free credit report request every 12 months. This means that you can request to get your credit status or report from bureaus like Experian, Transunion, and Equifax.
Home Loan Learning Center has reported that a minimum credit score of 680 is usually the minimum requirement for lenders and at least 620 for FHA loans. Any score lower than that may result in getting your application declined.
- Consider getting a co-signer
There are instances that people with lower than 680 credit scores are still approved to get a mortgage. However, financial institutions would likely suggest that you get a cosigner. This is also, especially if your income isn’t high enough.
Your cosigner’s income will be included in the affordability calculations. What’s good is that it is not required that you reside with your cosigner to get approved. He or she can just help you with your repayments.
Just make sure that your cosigner also has a good credit standing. He or she should also have good employment history and a stable income. If you do intend to get a cosigner, make sure that both of you go through the process and he or she understands the responsibility of cosigning a mortgage.
- Save for the down payment
Know that aside from your credit score, the lender will also consider the money that you already have to be able to make a down payment. If you don’t have anything for this, it may still not be a good time to get a mortgage. This is something that you should also ask upfront for you to know if you have enough saved money.
The minimum amount of down payment would depend on multiple factors like the type of mortgage you’d get. Lenders also have the right to establish their criteria for this. Typically, a mortgage down payment would at least be at 3.5 percent of the property’s value. It could go as much as 20 percent. Just know that the higher your down payment is, the more money you’ll save in the long run.
Overall, it’s best that you only consider getting a mortgage if you are already financially capable and stable. You need to make sure that you’ll be able to keep up with your repayments because if you don’t, your property will be repossessed. When choosing what to buy, stick to a budget and only buy what you can only afford.