Preparation is the key to getting a successful mortgage, but not a lot know how to do it.
You can try to figure things out yourself, but know that it can become overwhelming and stressful.
Fortunately, Sprint Funding have broken down the things you need to do to help you prepare and increase your mortgage application’s chances of getting approved.
Applying for a mortgage loan is easy, as long as you have the right documents in hand.
Here are some tips for a successful mortgage application we gathered that you need to know.
The Right Timing for a Mortgage Approval Process
The best time to apply for a mortgage is as early as possible.
You want to start the application before you even look for a place to buy.
There are several reasons an early application is the right first move, even if it sounds counterintuitive.
Starting an application early means that you get a mortgage agreement in principle (AIP).
AIP is an estimate of the figure a lender will give you based on the information you provided.
This figure helps you get an idea of what properties you can afford.
Sellers are also inclined to talk to you if you have an AIP because it shows that you’re serious about buying.
An AIP is also easy to get. You can acquire it during your first communication with the lender.
The value is not a guarantee but it’s an estimate close to what you would likely get.
You can get an agreement in only 15 minutes if you have the right documents and a deal in mind.
The documents that you need for an AIP are:
- Passport (proof of identity)
- Proof of income
- Bank statements for the last three to six months
Many homebuyers make the mistake of overestimating when shopping for a property that’s well beyond the money they can loan.
You can be on the verge of landing the deal, then back out because you couldn’t afford it all along. It’s a stressful experience that anyone would want to avoid.
Being in the application early also means that you can resolve any problems that arise as soon as possible.
Fulfilling any additional information or documents needed will hasten the process.
You can also get information on the different types of loans available to you. For example, lenders can loan more money in a joint loan because it considers your combined income acceptable.
Improving Your Chances Of Getting A Mortgage
You can always take steps to improve your chances. However, there are no guarantees that you’ll get the mortgage you’re aiming for.
Nonetheless, here are those steps:
Review And Fix Your Credit Report
Lenders will review your credit report to assess whether you have the capability of fully paying the loan when applying for a mortgage.
You can get a free credit report from the top agencies before making your application.
You have the chance to fix any mistakes that could affect you negatively once you have it.
These include updating information about already paid debts but the records about them are out of date and contain incorrect financial information.
The best time to check your report will be around six months before you plan on applying for a mortgage.
This time allotment gives you enough wiggle room to fix any mistakes or misinformation in your report.
Improve Your Credit Score
The credit score depicts a person’s ability to pay any credit. It’s pivotal to your application as it reflects the likelihood of your ability to repay a loan.
A credit score is an aggregation and calculation of several interrelated financial data about you, such as:
- Credit history
- Payment history
- Amounts owed
- New credit
You need a credit score of at least 620 or higher to qualify for most loans.
Generally, the higher your credit score, the better mortgage deals will be available to you. A high credit score usually means low-interest rates and the possibility of higher loans.
Prepare A Large Down Payment
Having a significant down payment ready gives you a better chance of getting approved for the mortgage.
It shows that you know how to save and handle money well. You’ll also have better chances of getting the mortgage approved if the amount you need is low.
Improve Your Debt-To-Income Ratio
Lenders are more inclined to approve a mortgage if they see that you have a low debt-to-income ratio.
A good balance between debt and income is essential as it shows how much space you have to accommodate the mortgage.
Your debt-to-income ratio should be at least 36% or lower to qualify. There are two main ways to improve this ratio:
- Increase your monthly income
- Reduce any recurring debt
Be mindful of your spending when preparing for a mortgage.
Making purchases that will increase the amount of money you spend in a month will negatively reflect this ratio.
Each lender approaches applications differently.
A lot of them have become strict due to the financial restrictions caused by recent events.
Some applicants get rejected because of details they were not aware of, even if they have a perfect score.
Here are some things to consider:
- Register to vote: Lenders use electoral roll data to confirm your identity. It helps them weed out people who lie about their information. A lender may see it as a red flag if your data is not present.
- Delink unwanted joint accounts: If you have any accounts connected with a former partner, then it’s time to unlink them. They’re still linked to your name even if you’re not using these accounts. Any bad decision they make can reflect on you.
- Declare everything: you must be trustworthy and honest in the eyes of lenders. Declare all your debts, give the correct income, and be honest with your spending habits. If they discover that you’re withholding information, then it will hurt your chances.
- Ensure the home is ready-to-move: there is a chance that the home you want to buy still has occupants. You would’ve to wait for them to move to their new home, which will lead to delays with the application in that case.
How Long Does A Mortgage Application Take?
Recent data shows us that mortgage reviews complete in an average of 49 days.
The longest time spent in the review is the underwriting process.
The lenders review all documentation and verify it during this period. Incomplete information will lead to delays and a longer process.
Make sure that you have everything they requested when handing in all your information.
Then promptly hand them whatever else is needed to speed up the process if they ask more.
Lenders will view an application positively if it has these factors:
- Positive credit history
- Steady income
- Low debt
They also test and check your regular spending while they’re verifying all your information. They assess your finances to see if it can handle the mortgage during difficulty.
You have to submit a mortgage valuation survey once you have a property in mind. The lender carries out this survey.
They do a study of the housing market in the area and check the property itself. This action is to ensure that you’re borrowing the equivalent of the actual home’s value.
The lender will ask for a higher deposit as an added assurance in some cases.
They want to make sure they’re getting a good deal. Getting the mortgage itself is one of the faster processes. All you have to do is finish the deal with the seller.
Hopefully, these tips for a successful mortgage application will help ease the entire process for you.
Review the reason for it and make the necessary adjustments if you do encounter a rejection.
Sometimes you’d want to wait before making an application again to work on your debt and credit score.