4 WAYS TO IMPROVE YOUR CHANCES OF MORTGAGE APPROVAL

If you’ve decided to buy a house, your next step is to get mortgage approval. It’s always a good idea to get pre-approved before you look at homes. Getting pre-approved tells you if you can borrow money, how much, and with which program.

A pre-approval is the first step to full mortgage approval, so it important to make sure you will qualify. 

Before you get pre-approved, know the 4 ways to improve your chances of mortgage approval.

Fix your Credit

Before you apply for a mortgage, check your credit. Everyone gets free access to their credit report annually. This doesn’t give you your credit score, but you’ll see your credit history. Go over each line looking for:

• Late payments – Any payment made over 30 days late damages your credit score. Bring any late payments current and continue making your payments on time. Your credit history is the largest portion of your credit score.
• Over-extended credit – Try keeping your outstanding credit at 30% or less of your credit line. Borrowing over 30% hurts your credit score and shows lenders you can’t manage your finances.
• Collections – If you have defaulted on any debts, the creditor may have sold your debt to a collection agency. Work with the collection agency to satisfy the debt and to ask them to delete the collection from your credit report.
• Mistakes – Errors happen all the time on credit reports. If you notice any incorrect information, dispute it with the reporting credit bureau. Each credit bureau has a form on its website for disputes.

Save Money for a Down Payment

You don’t need a 20% down payment to get approved for a mortgage, but the more money you can save, the better the terms you’ll get on your mortgage.

The loan program you use determines how much money you need for the down payment. Here are the most common requirements:

• Conventional loans – Minimum 3% down for first-time buyers and 5% for subsequent homebuyers
• FHA loans – Minimum 3.5% down with a 580+ credit score or 10% with a 500 – 579 credit score
• VA loans – No down payment requirement (only veterans qualify)
• USDA loans – No down payment requirement (only for low to moderate-income families living in rural areas)

In addition to the down payment, you’ll need money for closing costs, which can total between 2% - 5% of the loan amount.

Stabilize your Employment

Lenders like stable employment and income. Ideally, you’ll have a 2-year stable employment history, but it’s okay if you’ve changed jobs.

We look at your overall employment history. If you changed jobs, did you stay in the same industry? Is your income about the same or higher? These factors contribute to stable income. 

If you change jobs often and also change industries or take lower pay, though, it could work against you, so stabilize your employment as much as possible.

Lower Your Debt-to-Income Ratio

Your debt-to-income ratio signifies how much of your income is already accounted for with other debts. Every loan program has a different limit, but the lower your DTI is, the higher your chances of loan approval.

To show you what your DTI should be, here’s what each loan program requires:

• Conventional loans – 36% - 43% DTI
• FHA loans – 43% - 50% DTI
• VA loans – 43% - 50% DTI
• USDA loans – 41% - 43% DTI

The debts included in your DTI include any minimum credit card payments, car payments, installment loan payments, and personal loan payments. It doesn’t include things like grocery expenses, utilities, or insurance payments.

Bottom Line

The more attractive your loan application is, the more likely you are to get the best loan terms and interest rates. 

You don’t need perfect credit or the largest down payment, but the more positive factors you can provide, the better your chances of approval. If you have a lower credit score or small down payment, still apply, but maximize your other qualifying factors to ‘compensate’ for the other risk factors.

We look at loan applications as a whole rather than focusing on minute details. We make sure you are a good risk, meaning you aren’t likely to default on your payment. If you can prove you are a good applicant, you’ll have access to a large variety of loan programs available today. 

Contact Valley Mortgage in Fargo, ND

If you’ve decided it’s time to buy a, let’s talk. Our Valley Mortgage professionals are happy to walk you through your options and match you up with the perfect loan program. We have many options available for borrowers with almost any credit score, amount of equity, or home financing requirements.

Contact us for a no-obligation conversation. Valley Mortgage is the largest independent mortgage lender in North Dakota and northern Minnesota. We’ve be helping folks like you for more than 38 years. If you haven’t reviewed our website, click here. Please call us at 701-461-8450 to get all the details about home mortgages and refinancing. There’s no cost, no obligation. Valley Mortgage does all the processing right here in our Fargo, ND office.