Getting approved for a mortgage can be a tedious process. Many people will have to apply with multiple lenders before they get approved. Fortunately, if you understand all of the factors that determine whether you will get approved for a mortgage, then you will be able to increase your chances of getting approved. Below are some of the main factors that determine whether you will get approved for a mortgage:
The fico score ranges from 300 to 850. Lenders use this score to determine the risk involved with lending money to you. The higher your fico score is, the better. The biggest factor that determines your credit score is your payment history. Lenders want to know that they can count on you to make payments on time. That is why one of the best things that you can do to improve your fico score is to make payments on time. Pay off any past due accounts that you have before you apply for a mortgage.
Your outstanding debt is the second biggest factor that determines your credit score. This includes all of the outstanding balances on student loans, personal loans, credit cards and mortgages. If you can pay down some of your outstanding debt before applying for a mortgage, then you will increase your chances of getting approved.
Types of credit, the length of your credit history and new accounts are some of the other factors that determine whether you will get approved.
Lenders want to know that you make enough money to cover your mortgage payments. You will probably need to submit copies of your two most recent pay stubs. Your lender may also ask for your income tax returns from the previous year.
Many lenders will use your employment history in order to determine whether they will approve you for a loan. If you have switched jobs frequently in the past few years, then this may be a red flag to lenders. Your employment history says a lot about your stability.
If you have a higher down payment, then you will be able to borrow less money. You may also be able to lower your monthly payments. Keep in mind that your credit history will affect your down payment. A higher down payment is typically required for people who have poor credit. On the other hand, people who have an excellent credit history will probably be able to make a lower down payment.