5 Tips to Increase Your Chances of Getting Mortgage Approval

Feb. 25, 2013 - PRLog -- Obtaining mortgage approval for a home purchase has become increasingly complicated and difficult in recent years. More stringent lending regulations and restricted sets of qualification criteria have been implemented recently in the lending industry, leading to increased fears among lenders and loan originators of having to buy back loan defaults. However, there is much you can do to overcome these obstacles and obtain mortgage approval. These five tips will equip you with the proper resources and knowledge for maximizing your chances of mortgage approval.


1.   Debt-to-Income Ratio (DTI) is a necessary component for a home buyer to know. Banks are going to assess the monthly income to monthly credit and housing liabilities to determine if a loan has risk. The lower the DTI of a borrower, meaning the lower their credit and the higher their income is, the lower the risk to any lender. The lender will be willing to offer better loan terms. If you have a high DTI right now it is best to pay down your debt. If you can reduce your total debt such as car loans, student loans, and credit cards before filling out a mortgage application you will look better to banks. You need to reduce your DTI and increase your credit score. An unrealistic number which banks look at is 28% DTI meaning your housing expenses should not exceed more than 28% of your gross monthly income.

2.   Credit scores and reports are based on history from lenders. These tools are used by new lenders to determine the risk associated with a borrower. Lenders do like to see many open lines of credit, including a 24 month reporting history. Some loan programs allow for borrowers to use alternative forms of credit in order to apply and qualify for a loan. Before you apply for a mortgage or any other loan it is important to clean up your credit by finding out where your scores are. It is possible to get a free credit report from each credit bureau (Experian, TransUnion, Equifax), so that you can review them noting any discrepancies or reports that are more than seven years old. Negative items more than 7 years old can be removed from your report, helping to increase your score. Make certain to correct all outdated and inaccurate information. A credit score of 680 is the minimum requirement and most lenders want to see something around 720 or higher allowing you to obtain a better interest rate.

3.   Delay large purchases you were about to make until you have closed on the house. Lenders are going to check credit reports when you apply and right before closing. If you go on a last minute spending spree this will be noted and could become a hurdle to obtaining your loan. After the mortgage is closed on you can feel free to decorate the house as you wish, as well as within your current means. Always spend your money wisely.

4.   Loan to Value (LTV) is a term lenders use when looking at an outstanding loan and a property value. Certain loan options require a borrower to have a larger down payment as a means of avoiding mortgage insurance. Certain government loan programs created help buyers obtain a loan for 96 to 100% of the home value. Currently a conventional loan requires 20% down making the loan for 80%. A property purchased at $100,000 would mean $20,000 down as the 20% down payment. If you increase your down payment it reduces the amount of mortgage required for the purchase, meaning your loan approval chances improve. There are community programs to help first time buyers.

5.   Gather all your paperwork including pay stubs, assets, bank statements, credit documents, and income tax returns. Financial statements are required for the bank to process a loan. Without these documents the bank cannot proceed. Make copies of everything before handing them over.

Contributed by REALTOR Kelly Maltese with KFP Group at Keller Williams Realty
http://www.kfpgroup.com/