Tips for an Easier Mortgage Process

Finding your dream home is an exciting milestone, complete with the perfect location, amenities, and price. But before you celebrate, there’s one important step to tackle: securing a mortgage loan.

In the past, obtaining a mortgage was often easier, even for those with imperfect credit scores or limited savings. However, the landscape has shifted significantly, making it crucial to take specific steps to enhance your lender appeal. Here are six effective strategies to improve your chances of getting a mortgage.

Know the score

Understanding your credit score is vital. While it’s one of several factors lenders consider, it holds significant weight. The FICO score is the most recognized, ranging from 300 to 850. There isn’t a specific number that guarantees mortgage approval, but on average, successful applicants for conventional loans had a FICO score of 757, whereas those denied had around 700. Typically, a score above 760 offers access to the best rates, but even lower scores can work if other financial aspects are strong. You can obtain your FICO score from the major credit bureaus—Equifax, Experian, and TransUnion—for a fee. Alternatively, some websites offer free credit scores. This score is based on details from your credit report, which brings us to the next step.

Order your credit report

Your credit report is created by major credit reporting agencies, detailing your debts, loans, and payment history. It includes information on your current and past credit cards, mortgages, and other debts, including any late or missed payments. Reviewing this report is crucial because it influences your credit score, and you can dispute any inaccuracies you find. Federal law allows you to request a free credit report annually from each of the three companies via www.annualcreditreport.com. However, remember that this report doesn’t automatically include your credit score, and there’s no legal obligation for these agencies to provide your score for free.

Put more money down

In the past, zero down loans were more common, but they weren’t always the best choice. Today, a 20% down payment is standard, though not mandatory. Lenders often work with borrowers who have lower credit scores but can make larger down payments. Conversely, those with excellent credit scores but limited down payment funds may also fare well. It’s the mix of these financial factors that lenders assess.

Reduce your debt

Lenders pay close attention to your debt levels. Generally, your total debt—which includes home payments, taxes, insurance, credit card debt, and loans—should not surpass 36% of your gross monthly income. Ideally, a lower percentage is favorable, and many successful mortgage applicants have debt-to-income ratios around ten percent lower. Therefore, tackling your debts before applying for a mortgage can greatly enhance your prospects.

Just say no to new credit cards

When you apply for credit, such as loans or credit cards, your credit score takes a hit. Every application is reported to credit agencies, and a flurry of inquiries can signal overspending to potential mortgage lenders, potentially affecting your approval odds and interest rates. However, if you have no credit history, it’s wise to obtain a credit card well in advance—six months or more before your mortgage application. This helps establish credit, and the impact on your score diminishes over time. Ensure you apply for a card you’re likely to be approved for to avoid setbacks.

Give yourself the gift of time

These strategies require more time than you might think. Correcting credit report errors, saving for a down payment, and improving your credit score are not overnight processes. Start these steps as early as possible, ideally six months or more, if buying a home is on your horizon.

Whether you’ve found a home or plan to start searching soon, now is the time to prepare yourself to be a mortgage-worthy candidate. Your dream home—and a future celebration—await you.