Buying a home is a significant financial commitment. But if you’re planning to buy a house, you’ll probably need to secure a mortgage. And while comparing mortgage rates is an excellent first step, applying for and getting a mortgage is the most crucial part of the process. While it might seem challenging and daunting, with the right preparation, getting a mortgage can be a relatively smooth process. Keep reading to learn more!
- Striking a balance between the dreams you have for your future home with the reality of your mortgage payment can take some time.
- To boost your chances of getting a mortgage in 2023, you should check your credit report, work on improving your credit score, lower your debt-to-income ratio, and actively save for your down payment.
Check Your Credit Rating
Every lender will examine your credit score and rating to enquire about your financial history. All loans and credit cards are registered with the credit agencies, such as Transunion, Experian, or Equifax, with loan amounts, late payments, and defaults. Every agency will provide a rating so the mortgage lender can assess your reliability as a borrower. Your credit score can be affected by the following factors:
- Payment History: Just one missed payment on a bill or credit card can negatively impact your credit score. Typically, payment history makes up 35% of your credit score.
- Credit Usage: That assesses how much you’re regularly spending on revolving credit, including store cards and credit cards, compared with your total credit limit. It shows the lender how much you rely on available credit for your regular spending.
- Credit History Length: This checks how much credit you have and how long you’ve had the different accounts. Typically, the longer the credit history, the better.
- Credit Mix: Having a diverse range of credit- car loans, mortgages, and credit cards, managed well, will have a positive impact on your credit score. That’s because it shows you can manage a diverse portfolio of credit products.
Ensure Your Income is Provable
All lenders will evaluate your income and that of any cosigner to ensure it’s what you say it is. If you run your own business or are self-employed, then you have to complete up-to-date accounts and records. If you’re employed with bonuses and overtime as part of your salary package, then these should be provable.
To boost your chances of getting a mortgage in 2023, ensure that you gather your paperwork together to make sure that everything is in order when you need to prove income, including:
- Bank Statements: It’s recommended that you have at least the last 12 months’ bank statements in case the lender requests to see them.
- Payslips: You should have a two-month payslip, and if you receive an annual bonus, then you should have the previous 12 months’ payslips to hand. Moreover, if you have more than one job, ensure you include the payslip for those jobs as well.
- Accounts: If you run a business or are self-employed, you’ll need to provide the last 3 years’ accounts prepared and submitted to HMRC. If your business hasn’t been operating for 3 years, the lender might accept 2 years’ accounts and a projection of the 3rd year prepared by an accountant.
Pay Off Other Debts
When you apply for a home loan, the lender will check your debt-to-income (DTI) ratio. DTI ratio is the percentage of monthly income you’re shelling out for your minimum monthly debt payments. Typically, a DTI ratio of 36% or less is considered ideal and can boost your chances of getting your mortgage (or even a larger loan). However, some lenders will qualify you for a mortgage even with a higher DTI.
Paying off your credit card or installment loan can make a massive difference in DTI. Moreover, reducing credit card balances by refinancing an auto loan, using a balance-transfer card to lower payment, or consolidating debt into an installment loan could also help.
Put More Down
Coming up with enough money for your down payment is typically one of the biggest hurdles during the buying process. In fact, the average down payment that homebuyers put is 12%, while for first-time homebuyers, it is 6%. However, if you make a larger down payment (of more than 20%), you may increase your odds of getting approved for a mortgage. A larger down payment can show your lender that you’re serious about buying a home and have the money to prove it. Besides giving off the impression that you’re more trustworthy as a borrower, a larger down payment also lowers the loan-to-value ratio, which can boost your chances of getting a mortgage.
Essential Note: Not only is a large down payment a plus for the lenders, but it’ll also help make your offer look more attractive to sellers. It allows the sellers feel more confident that your financing is secure, and that could help boost your chances of getting your offer accepted.
Compare Mortgage Lenders
Every lender is different in how they underwrite mortgage applications and how they assign interest rates. So, while one lender might reject your application, another might be more than willing to finance your home purchase. The lenders you compare, the better your odds of finding one or more lenders who are willing to work with you. You’ll not only boost your chances of getting a mortgage, but you’ll also secure lower interest rates when you compare mortgage lenders.
Want to Learn More? Call Us!
If you’re considering buying a home, it’s essential to prepare for financing. But before submitting your mortgage application, you should ensure you’re a good candidate for the loan. The abovementioned tips can help you boost your chances of getting a mortgage in 2023. For more information about securing a mortgage and the entire homebuying process, call our real estate experts today!