Mortgage Insights Blog

Qualifying for a mortgage is certainly not as easy as it used to be. The turmoil that has gripped the housing and the credit markets has led to lenders tightening their approval standards. But while it is more difficult to qualify, it is not impossible. And in fact, with the current availability of first-time homebuyer programs, historically low long term interest rates, and low home prices, now has never been a better time to look into purchasing a home.

To help you prepare for the mortgage approval process I am offering some tips to better improve your chances of getting a mortgage:

1. Check your credit reports.

The three main reporting agencies are Equifax, Experian and TransUnion. You’ll want to make sure that all the information on these reports is correct. If you find some information that is incorrect, you should report the discrepancy immediately to all three reporting agencies. Anything negative on your credit report can hurt you, even if it’s not right.

There are many sources available on the internet where you can download a free copy of your credit report once a year. I recommend going to www.annualcreditreport.com for their easy to use and navigate website.

Once you have your credit report, if you have any questions or do not understand how things have been reported, please feel free to contact me for a free credit consultation.

2. Boost your FICO score.

Most mortgage lenders will use the middle credit score as calculated by the three major credit bureaus to determine a borrower’s ability to repay and possible default risk. Because lenders use these scores to measure your ability to repay a loan, you may be interested in some steps you can take to improve them.

One such step is to pay down the balances on your revolving debts. Revolving debts are debts such as credit cards that do not have specific loan structures, rather your payments are based on the current outstanding balance. And be sure to pay all your credit accounts on time and do not intentionally close any accounts, even if those accounts currently have a $0 balance.

3. Put money aside for a down payment.

Generally it is recommended to set aside enough for a 5% to 10% down payment. From a lender’s perspective this will show that you are serious about becoming a homeowner and most lenders feel more comfortable granting a mortgage to a borrower than can make a larger down payment. And if you end up not using the amount of money you have set aside, these balances will count towards your reserve requirements which lenders use to measure your ability to repay future payments.

That said, there are programs available to first-time homebuyers that currently offer grants that can be used for down payments and even towards your closing costs. But qualifying is very strict and you are still expected to have some amount saved up for reserves or to pay your closing costs.

4. Get realistic about your budget.

As a general rule of thumb, your total housing expense including mortgage payment, property taxes and homeowner’s insurance should be no more than 35%-45% of your monthly household income. Be sure to get pre-qualified by a mortgage professional before you begin your search so that you will have a good idea of your price range and the availability of special first-time homebuyer programs and down payments assistance grants.

And don’t forget to factor in other expenses of homeownership, for example, figure out what your possible utilities expenses may run. If you are buying a home with a pool you can expect to have a higher energy bill. Or if you are buying a home with a large yard, you might spend more money on water each month.

Bottom-line, be sure to plan your expenses carefully and allow yourself room for savings, food and entertainment, as well as any unforeseen future events. If you make $4,000 a month, don’t take a mortgage out for much more than $1,400 a month. This will ensure that you have adequate reserves to make your payments.