Tips for Home Loan Approvals

Read Time: 3min

Even though the holidays have come and gone, buying a new home might be the gift you’ve set your sights on in 2022. Regardless of whether you already own a home or are a first-time homebuyer, there are several steps to take that could up your chances of securing a mortgage.

Step 1:  Reduce Your Debt

Did you spend too much in December? Are you still paying off those gifts you bought in 2020? High balances on credit cards impact your debt-to-income ratio, which has an impact on your mortgage. In other words, you need to have more money coming in than going out.

  • How to Determine Debt-to-Income Ratio

Add up your monthly debts, including credit card payments, health insurance, required property insurance and taxes, any outstanding loan payments and divide that number by your gross monthly income. Then multiply that number by 100 to know your debt-to-income ratio percentage. Remember that the higher number, the harder it will be to pay down your debt, which makes lenders less likely to give you a mortgage.

  • Three Methods to Reduce Credit Card Debt and Lower Your Debt-to-Income Ratio

The National Retail Federation expected consumers to spend an average of $998 on gifts, food and decorations in late 2021. Some cover that cost with a credit card. If you were one of those people, you have a few options to knock that debt down. It is important to pick the option that is best for you; no one is better than the other.

Snowball Method: Imagine a snowball rolling downhill gathering snow as it picks up speed. After a while, it’s almost impossible to stop. Make sure you are making minimum payments on all your credit cards and use any extra money to pay off the card with the smallest balance. Keep doing this until all your balances are paid in full.

Avalanche Method: This method isn’t exactly the opposite of the snowball method, but it does require you tackle the balance on the credit card with the highest annual percentage rate (APR). In other words, you want to get rid of the credit card debt where you are paying the most interest.

Balance Transfer: If your bank allows it, transfer balances on all your high-interest credit cards to a low- or no-interest card. The key to this is you need to stop using your credit card and start chipping away at the balance before the interest rate goes up.

Step 2: Check Credit Reports and Credit Scores

Credit Reports: Pull credit reports from the three major credit bureaus: Experian, Equifax and TransUnion. (Get free credit reports here.) Make sure all the information on the credit reports is accurate, including name, social security number, loan and credit accounts. If your credit report lists negative items, remedy those before applying for a mortgage.

Credit Score: Many major credit card companies will provide your FICO score free. Conventional lenders consider a minimum score of 620 to 640. A government-backed loan will allow you to get a mortgage with a FICO as low as 500. Once again, knocking down debt and getting rid of credit cards that you don’t use (potential debt) will help improve your score.

Step 3: Pay Your Bills

Paying your bills on time reassures lenders that they will receive loan payments on time. If you can pay bills early, do it.

Step 4: Don’t Leave Your Job

Lenders want you to have a stable income. Quitting a job or even switching jobs while you are applying for a loan could make it harder to get approved. Part of the application process is providing recent pay stubs.

Step 5: Gather Important Paperwork

Getting a mortgage approved requires a lot of documentation. From income verification to proof of assets and liabilities, lenders need that paper trail. Gather bank statements, pay stubs, W-2 forms, tax documents and other financial documents to prepare for applying for a mortgage.

Preparing to get a mortgage can feel overwhelming. Reduce that stress by turning to a knowledgeable person who can guide you through this process. Contact a Wyndham Capital Mortgage Consultant today.

Matthew Harris is the Internal Communications Manager at Wyndham Capital Mortgage. With over 11 years of experience writing and creating content about topics from sports and culture to financial systems and business, Matthew brings his expertise to the mortgage industry. Matthew oversees Wyndham’s internal communication and content strategies to help drive the internal messaging and creating content that gives both employees and borrowers relevant and reliable information to help them make informed homebuying, selling and refinancing decisions. Matthew has a Master’s Degree in Communications from Purdue University and a Bachelor's Degree in Journalism from Appalachian State University. His interests include social media marketing, content creation and catching the occasional sports game.

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