Mortage

20 Tips to Get Approved for a Mortgage Loan


20 Tips to Get Approved for a Mortgage Loan 04.09.20191 Comment
20 tips to get approved for a mortgage loan

Buying a new home can be challenging not only emotionally but also financially. That’s probably the reason why you are considering getting a mortgage now. There are 2 different myths about taking a mortgage to get a new home for yourself. Some people getting a mortgage are sure that it is one of the easiest things one can do. Others are convinced that they should avoid taking a mortgage at all costs. Luckily, these are only myths.

Mortgages can be of big help to anyone who wants to buy a new home, but it is financially challenging for them.

However, if you want to benefit from the mortgage instead of losing money, you will have to know all the ins and outs of the mortgage process and how to benefit from it.

Check your credit report for errors

Your credit score is how creditors or the bank make decisions about lending money to you. They look at your score and assume it is the correct one. However, sometimes there might be errors in your credit score report, and you are the one responsible for fixing those. You should be monitoring your credit score at least once a year to make sure the creditors have the right picture of you.

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How to get a mortgage in United States?

To check your credit report for errors, here are the steps you should take.

  • First of all, you should request your credit report from one of the credit bureaus. Once you get it, you should start reviewing the report for any inaccuracies. Try checking for errors in the names, dates, addresses, your credit payments, inquiries, and public records.
  • Secondly, if you find any errors, you can try comparing your credit report with those from other bureaus and see if they have the same mistakes.
  • At last, if you detect errors, you need to find supporting documents to be able to prove that some of the items are inaccurate. Once you have the proof, you will need to inform the credit bureau that you’ve found an error and file a dispute.

Make sure you have stable employment

When giving a mortgage, the most important factor that banks consider is if you are going to be able to pay it back. One of the best ways to convince them that you can pay it back is showing a steady job that provides you with monthly income. If you are in between jobs or self-employed, it might be harder for you to get the lowest rates on the market.

The landers might give you money with higher rates to compensate for your steady job as your non-steady job makes you a less attractive borrower. However, if you are changing your job to a more favorable one, let’s say with a higher salary, it won’t affect your mortgage negatively.

Find the right Loan Officer to work with

When trying to get a loan or mortgage, it is always important to make sure you know all the details about the industry and the particular actions you'll need to take to achieve your goals. However, the rules are always changing, and different institutions have different requirements for lending money. You can’t know every detail about all of them, especially if you are trying to get a mortgage for the first time. That’s why you need a broker, someone who knows all the ins and outs.

A broker knows the tricks as well as people in the industry and can show you the right way of dealing with the situation. If you find the right broker, you can consider that 50% of the work is already done.

If you don’t know any good brokers, try to check their pages on Yelp, Facebook, and wherever else you will find customer reviews. That will help you see what others say about the particular broker before making a decision. That will undoubtedly make it easier for you to find a new broker.

A Perfect Score is not required

If you think that you can only get a mortgage if your score is perfect, you are wrong. A good score will ease the process. However, many other options are available to people with a lower credit score. Loans like FHA, VA, and USDA offer lower requirements and more benefits. Especially if you have a low credit score, these might be the best options for you.

The calculation for a house for $200,000 will look like this. The difference will be in the percentage rate (APR) and monthly payment.

Fico Score APR Monthly Payment Total Interest Paid
760 - 850
3.2%
$874
$114,773
700 - 759
3.5%
$899
$123,634
680 - 699
3.6%
$919
$130,793
660 - 679
3.8%
$943
$139,560
640-659
4.3%
$993
$157,535
620 - 639
4.8%
$1,058
$181,030

Make no new large purchases

While waiting for mortgage approval or even closing the mortgage, it is best to avoid other large credit purchases. Even if your mortgage is already approved and you think it’s time to buy furniture, don’t do it. Wait until the mortgage is closed and only then make your purchase.

If you do make that large purchase, you might scare the lenders away by increasing your debt-to-income ratio and credit utilization. The lenders can change their minds and pull back the money anytime, and you might end up having furniture but no house to put it in.

Ignore “bait rates.”

If you are mortgage shopping for the first time in your life, you might be unfamiliar with the bait and switch practice. Sometimes the lenders use this technique to attract more borrowers. They promise lower rates, and when the borrower is ready to sign, they change the terms at the last minute. This will most probably leave you very angry and frustrated. But there are ways to avoid taking the bait.

Negotiate a lower home sales price

When shopping for a home, we are eager to find something that’s appealing to us and something we feel an emotional connection with. And when we find the perfect home, we might want it so much that we forget to take the price into thorough consideration. However, if you have found the ideal home for you, and you can lower the cost with the seller, you should take the chance.

Negotiate a lower home sales price
Negotiate a lower home sales price

I am not saying this only because spending less is always good, but also because it can affect your mortgage approval. If the price of your home is low, you will need less mortgage money to cover your purchase, and it will be less risky for the lenders to trust you with the mortgage.

Compare mortgage rates

If you are trying to get a mortgage from a bank or any other institution, it is always important to compare their offer with other banks or institutions.

That will help you find the best available rates and terms. You will also learn a lot about the industry while asking around and gathering information. Consider that you can not only get a mortgage from the banks and credit unions but also online mortgage lenders and sometimes even thrift institutions.

Comparing Rates
Comparing Rates

Don’t forget about mortgage refinancing

If in the middle of your loan’s life, you realize that your rates are too high and you want to make some changes in terms of your loan, you can always request a refinancing.

This doesn’t mean that you are taking a new loan, but it simply means that you are changing the source of the money you are getting for your mortgage.

Most often then not, you will get better deals and more appealing rates after the refinancing.

Example
Example

Improve your credit score before applying

As we have already mentioned, the credit score is not the only important thing that affects your mortgage approval. You can get a mortgage even if your score is as low as 640. However, it doesn’t mean that you should ignore your credit score.

Having a higher credit score will help you get better rates and more appealing terms. If you are not sure how to improve it, please follow this link for some tips.​

Fico Score APR Monthly Payment Total Interest Paid
760 - 850
3.2%
$874
$114,773
700 - 759
3.5%
$899
$123,634
680 - 699
3.6%
$919
$130,793
660 - 679
3.8%
$943
$139,560
640-659
4.3%
$993
$157,535
620 - 639
4.8%
$1,058
$181,030

Working spouse

If you are thinking of applying for the mortgage together with your spouse, make sure they have a stable job and a good to excellent credit score. If your spouse is unemployed, it might be better if you apply for the mortgage yourself.

The lack of a job might affect negatively on your mortgage approval. If your spouse is currently unemployed but will get a job soon, it’s better if you wait for them to get the job and only then apply for the mortgage.

Include Spouse as Co-Applicant

Contrary to an unemployed spouse, a working spouse with a good credit score can facilitate the process. In that case, the bank, credit union, or whoever is giving you a mortgage will see this as a strong case.

Your debt-to-income ratio will go down, and the creditors will see that both of you together will be able to pay back the mortgage much sooner. And this will help raise your chances of getting a mortgage.

Make extra payment

No matter how much was your down payment or if you have a closing amount, paying extra wherever you can always is a good idea.

When you make additional payments besides your monthly scheduled ones, you might be able to close the mortgage a few months earlier than expected.

That will help you save money on the monthly mortgage interest.

Effect Of Extra Mortgage Payment
Effect Of Extra Mortgage Payment

Pay off your other debs

Nowadays, getting a loan while still having other depts is common. In the previous paragraph, we’ve mentioned that paying extra is great, and it will help you save money.

However, if you have other debts which are generating interest while you are busy making your mortgage payments, it is advisable to close the other debts first.

This doesn’t mean that you should forget about your mortgage, but rather make no extra payments on your mortgage and instead cover your other debts.

After you have no other debts, you can focus all your energy, income, and savings on closing your mortgage.

Spend less amount on buying the house

There are very few cases when the buyer’s expectations and the home they buy are 100% inline with each other. Most of the time, people want to make changes in the house to make it feel like theirs and to be exactly what they wanted. This might happen to you too.

It would be reasonable to find a house that costs less than you can afford. That way, you will be able to invest the rest of the amount into making the house exactly the way you want it.

Read all the terms

One of the worst things you can do while getting a mortgage is to sign the papers without reading those. Many people sign whatever documents they are given, thinking that whatever the creditor gives them must be correct and all as agreed.

While it all may be as agreed, it happens a lot when some detailed clauses included in the documents in the scope of your agreement end up limiting your actions.

Read all the terms
Read all the terms

Also, don’t just read the agreement, read it carefully to understand every clause presented to you.

Use your tax refund

One of the most exciting techniques for paying a mortgage is utilizing the money received from tax refunds. In 2020, the average tax return is expected to be $3,000. If you use the entire tax refund amount to make your mortgage payments, then in 10-12 years you will have paid $30,000-$40,000 of your mortgage loan. And this is the case when we even consider inflation.

Thus, you don’t need to look for a second job or work harder to pay out your mortgage faster. All you need to do is to pay the money from your tax refund to cover your mortgage payments. Do that once a year over the next 10-12 years, and you will reduce your mortgage payment period by 10-12 years.

Rent out space

Currently, the bed and breakfast economy is booming, and it is an easy way to make some extra cash to cover your mortgage.

If you feel like you need some extra money, but you don’t have that much time to invest in an occupation, you can rent out a spare room at your house or the entire place, if you are not going to be around for a few days.

Airbnb and other platforms like that will help you do that much easier.

Check on pre-payment penalties

It is easy to assume that making early mortgage payments is good, and you will be better off doing that. However, it is not always the case. While some mortgage plans have penalties for late payments, some others have penalties for early payments.

Reading all the terms and conditions of the mortgage agreement before signing will be useful to avoid facing penalties.

Getting a mortgage and closing it isn’t an easy process. It takes a very long time, commitment, and discipline. The points we’ve discussed are to make your life easier by familiarizing you with the ins and outs of the mortgage process.

Additionally, you can take a look at our mortgage calculator and see if you will find it helpful. I hope you can use all of this information to get better and more beneficial deals.

Good luck with your forthcoming mortgage. 

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Andrei Shilkov

Blog author. I am well versed in Finance and Digital Marketing. I have two bachelors degrees in Finance. Born in Russia, but later moved to the USA, to western Pennsylvania, the city of Pittsburgh. I have a Certified Public Finance Officer (CPFO) certificate. I also worked at IRS and Microsoft.

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One comment

  1. My wife and I are finally ready to purchase our first home for our family. We have been saving for a while and we have decent credit scores. It’s great to see that our credit score doesn’t have to be perfect in order to get a good mortgage rate.

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