How Can I Qualify For The Best Mortgage Possible?

Let's look at it from the lenders' perspective. Lenders evaluate your credit, your ability to make the payments and the property when deciding whether or not you are approved for a mortgage.

Getting Your Home Ready

If you're purchasing a home from a seller who you don't know, appraisers rarely have a problem justifying the home's value since it's an arm's-length transaction. If they can't support the price, it's a warning sign that the house is over priced and you should consider renegotiating or looking at other properties. If you're homeowner, you'll want to preserve your ability to refinance when you need to. You'll need to keep your home well maintained. If you are considering a remodeling project that may require financing, do not start the project before being approved. It is much, much harder to get financing for a project that is already underway.

Strengthening Your Ability To Pay

Lenders are concerned with your income, your debts and probability that your positive cash flow will continue in the future. If you've been in same job or field for two years and have no gaps in employment you should have plenty of options. Changing careers or quitting your job and starting a business in the middle of the mortgage process is a sure-fire way to get denied. If you're relying on income that is not likely to continue more than two years you're going to have a hard time convincing a lender to approve you. Lenders look very closely at your debt-to-income ratio which is your minimum monthly payments on your debts including the prospective new mortgage divided by your gross income. A 45% debt-income-ratio is an important threshold, but it doesn't guarantee you'll qualify for the lowest mortgage rate. Keeping this ratio as low as possible will give you more options for your mortgage. Pay down debts that you can without totally depleting your savings. It is usually is wise to put off acquiring new debts like buying a car while trying to get approved for a mortgage.

Building Strong Credit

There are many great articles on the web describing how to build strong credit, so we won't go into great detail here. Get your credit report and credit score for all three credit bureaus and look for areas that you can improve. You don't want to be applying for other types of credit like credit cards or car loans while you're applying for a mortgage. That will only drag your credit score down. Of course, not making late payments and avoid collections will also help your score. One thing people overlook is your score can be brought down significantly if you maintain balances on credit cards that are close to your credit limit. If possible, you'll want bring them down to 30% of your credit limit or lower. A long history with a few well managed credit cards will help your score.

Being proactive and planning well before you apply for a mortgage will help you qualify for the best loan possible and can save you a tremendous amount of money in the process.