Applying for a mortgage is not like trying to get a credit card or even a small personal loan. When you set out to purchase a house, you are usually asking for a great deal of money and you are probably embarking on the single largest investment you will ever make. For that reason, you should be aware of anything that might affect your mortgage loan approval, because if you are denied, you’ll have to watch your dream house fall through the proverbial cracks.
Mortgage Loan Approval: Credit Report
This is the most obvious factor that will affect your mortgage loan approval. Even if you think you know what is on your credit report, it is always best to obtain a copy from each of the credit bureaus before applying for a mortgage loan. Experts estimate that 40% of credit reports contain errors, and if you are one of those people, your mortgage loan approval could be in jeopardy through no fault of your own. In most cases, each of the credit bureaus will have different information on file, so make sure you obtain your credit report on each.
Mortgage Loan Approval: Credit Cards
Be proactively cognizant of your credit card practices during the months preceeding a mortgage loan application. Any activity on your credit report that might indicate irresponsible spending could put your mortgage loan approval in jeopardy. Avoid canceling more than one account, especially an older account that establishes a long-term credit history. You should also avoid applying for several credit cards because those are red flags to mortgage lenders.
Mortgage Loan Approval: Outstanding Debts
If you apply for a mortgage loan while you still have several thousand dollars worth of outstanding debts, you have a significant chance of being denied. Mortgage lenders are wary of extending debt to individuals who already have too much on your plate, so try to pay off as many debts as possible before applying for your mortgage loan.
Mortgage Loan Approval: Employment Status
Believe it or not, your employment will play a factor in your mortgage loan approval. Mortgage lenders look for people with steady, reliable employment history; if you’ve changed jobs recently or been fired in the last few months, it might be better to put off the mortgage. You’ll need to supply pay stubs, bank statements and possibly even IRS returns in order to secure your mortgage loan.
Mortgage Loan Approval: Capital
When you apply for a mortgage loan, you have to consider all of the costs involved. Not only should you make a sizeable down payment, but you will also be responsible for closing costs. Make sure that you have enough capital in your savings account before applying for a mortgage loan. If you don’t have sufficient funds to complete the transaction, your application will be denied.
Mortgage Loan Approval: Down Payment
Your credit history will play a large part in the amount of the down payment you will have to provide. Individuals with poor credit history will require a larger down payment in order to secure a mortgage loan approval, while those with high credit scores can get away with a lower down payment.