The best time to prepare for a disaster is well before one happens. Prevention is always preferable to devising an adequate solution. When you apply for a home loan, this means finding out the most common reasons applications are rejected before you start to work on your own. Your proactive friends of Wyndham Capital Mortgage are here to offer you three specific strategies to keep your loan from receiving a red REJECTED stamp after you submit it.
1. Know Thy Credit-Self
The moment you decide you want to become a homeowner is the moment you want to check your credit report and your credit score. TransUnion, Equifax and Experian are the three major credit reporting agencies, all of which offer consumers a free credit report a year, meaning you can receive up to three free credit reports every year. Look over your credit score to make sure all of the information is correct, taking steps to fix or remove items that aren’t.
You should also work on boosting your credit score as much as possible, at least to 620, which is the score a majority of lenders prefer borrowers to have before they even consider them for a home loan. In the event that you have a foreclosure or bankruptcy on your credit report, we suggest that you go ahead and start researching mortgage options for borrowers in your situation.
2. Avoid Adding to Your Debt-to-Income Ratio
When deciding whether to approve your mortgage application and how much to offer you for a loan, lenders take a close look at your debt-to-income ratio. This number is the amount of debt you currently have compared to the income you currently bring home. Even the smallest debt can completely decimate your chances of approval. Avoid buying a new car, making unnecessary charges on your credit card and anything else that increases your debt. Instead, take actions to alleviate your debt and pay down the amounts you currently owe on your credit cards. Make extra credit card and car loan payments when you can, and think of things you can do to boost your income, or at least the amount you have in your savings account.
3. Make Sure There Aren’t Issues With the Appraisal
Depending on the lender, your loan approval could be tied to the appraisal of the home you would like to own. If there are any problems with the appraisal, there’s a chance you may be denied your mortgage. To keep this from happening, you can pay to have the home inspected by a licensed professional before it’s appraised. While hiring an inspector costs money, it could prove to be a great investment if it keeps your mortgage application from landing in the rejected pile. Additionally, there could be unique appraisal requirements tied to your home loan. For instance, FHA mortgages stipulate that a property can’t be too close to a gas station in order for the borrower to be approved for a loan. If the appraiser determines the property is in fact too close to a gas station, your application could be rejected. Research appraisal requirements for the loan for which you’re applying in order that you can gauge your chances of whether your application will be approved or denied.
While there are several more things you can do to avoid a home loan rejection as you learn how to apply for a home loan, these three make for a great jumping off point. Do some research on your own, and feel free to reach out to an experienced mortgage expert to learn more things you can do to increase your chances of loan approval. Let us know what we can do to help you learn more!