Applying for a mortgage is never an easy job. You can’t change your income or credit history overnight – but by taking care of a few key responsibilities, you can turn the odds in your favor. You can prepare yourself by learning ahead of time, setting your expectations, and striving to stay ahead in the game. If you need help making the necessary preparations, a broker may be the best person to call. They can help you search for the best possible terms and rates, and loans that suit your needs. But, if you’re looking for a more desirable outcome, you should be one step ahead of everything.
With that in mind, here are a few tips and tricks you need to do before applying for a mortgage:
Figure Out Your Budget
The first thing to determine is how much of a loan you can reasonably afford. Lenders look something called the debt-to-income (DTI) ratio, which is the proportion of your income used to repay debts. Ideally, you shouldn’t spend more than 28% of your income on mortgage payments, and all your debts – including mortgage, car loans, or any other monthly installments – shouldn’t account for more than 36% of your income. This is not a strict rule, but most lenders follow it to determine the borrowing limits.
Boost Your Debt-to-Income Ratio
If you want to maximize the size of your loan, it makes sense to improve your DTI ratio. It’s usually used to compare your monthly income against your monthly monetary liabilities. If you have a low debt-to-income ratio, it means you have adequate income to shoulder your debts, which in turn, makes you a great borrower. However, if you have a high DTI ratio, the lender may see you as a risky borrower. In that case, you need to boost your ratio before taking out a mortgage.
The good news is you can do that in two ways:
Raise your income. You can do this looking for a promotion, a higher-paying job, or search for alternate sources of income. When you have more income, you can pay all your debts without delays, resulting in a high DTI ratio.
Lower your debts. This is the preferred method for many people because it’s generally easier to retire your loans and other debt than looking for opportunities to raise your income. When you have minimal debts, you may be able to pay them in full using your current income. Consequently, you can minimize your DTI ratio, which helps improve your odds of getting a mortgage approval.
Improve Your Credit Score
A major factor in deciding whether your loan will be approved or not is your credit score. If you’re not aware of your credit score, be sure to get a detailed report. Then, once you get it, you should take steps to raise your score. There are few ways to improve your credit score, like paying off any debts, avoiding opening new accounts, taking new loans or any activity that might require a credit check.
One more point: Whether you have a gambling habit or only visit the casino occasionally, it’s important to learn as much as you can about gambling and mortgages; the good news is that, in most cases, gambling in moderation shouldn’t negatively affect your credit score.
Get Your Papers In Order
You’ve got to be organized before applying for a mortgage; it’s also important to be completely transparent about your sources of income and expenses. If you have a partner or spouse, declare the income for both of you. Gather your proof of identification, proof of address, bank statements, tax records, as well as documents that verify your income and expenses. Your lender will provide a detailed list of all the required documents.
Moreover, make sure you have the paperwork ready when you submit your mortgage application online or to the lender’s physical office. That way, you can streamline the application process.
Research Potential Lenders
Finally, you need to start looking for the best lender. So be sure to do your research; the worst mistake you can make is to choose a lender in haste. Here are three of the most important things to look for in a lender:
Knowledge and Experience. The lender must have thorough knowledge about this mortgage business. His experience should teach him the crucial nuances for succeeding in this field. The lender must know about all the loan options, the rules, guidelines, and how things can become smooth for you.
Reputation. The lender should have a good reputation for his work. If possible, reach out to his previous clients and take genuine feedback from them. You can check their website to learn more information about them. You can also visit some reliable third-party review websites to know how reputable your potential lender is.
Value. When shopping for a mortgage, don’t simply look at the interest rate. To ensure you get the best deal, you’ll need to check the points, repayment terms, and the list of mortgage lender fees too.
There is no single secret ingredient that can guarantee success with your mortgage application. But by following a few key responsibilities, you will smooth the process, reduce hassles, and increase your chances of getting that mortgage approved on your first try.
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