Mortgage lenders base their loan offers on various parameters. No two mortgage lenders will use the same formula. No matter which lender you choose, there's a few ways for you to make yourself more appealing to them. Here are three ways to improve your chances of receiving a good mortgage loan offer.
1. Come With a Substantial Down Payment
The amount you have available to put down on a new home can make a large difference in your mortgage loan approval. There's no fancy science to it. The more money you have to put down, the better. The higher your down payment, the less you will pay in monthly mortgage payments.
Generally, your down payment should at least consist of 5% to 20% of the sale price of a home. However, if you can do even better than 20%, then it's worth considering. A larger down payment can also offset less-than-fair credit.
2. Clean Up Your Credit Profile as Best You Can
Before shopping for a new home, you should take some time to clean up your credit profile. Even if you have okay, or better than average credit, you should still give it a once-over.
- Get your free credit reports
- Go over every item on it
- Look for mistakes and out-of-date items
For any debt currently in effect, see what you can do by calling the creditors. You can also try a nonprofit debt service if you need help. Just make sure you address anything that can raise a red flag for a mortgage lender. These can include things like long outstanding debts, and any debts that have to do with loans.
3. Figure Out Your Debt-to-Income Ratio, and Lower It
Your debt-to-income ratio is the percentage of your monthly income that goes towards debt. Add up all of your monthly expenses, and divide that number by your monthly income. Turn it into a percentage, and that's your DTI. If you can get it down to about 35% or lower, then you will look good to a potential mortgage lender.
The best ways to lower your DTI include
- increasing your income;
- lowering your monthly expenditures;
- and eliminating as much recurring debt as possible.
It's not always easy to accomplish all these things before you're ready to purchase a new home. If you're not exactly sure where to start, you can speak to a real estate agent. Let them know what kind of house you want, and the agent can help you figure out what more you can do to afford that home.
