For many of us, becoming a homeowner is a lifelong dream. But as with all new experiences, it comes with a little uncertainty. Getting pre-approved for a mortgage is one of the first steps you should take as you search for a home.
Getting pre-approved by a lender means you’ll have the opportunity to discuss different loan options with the lender, which will serve to clarify your total budget and the monthly mortgage payment you can afford. As a borrower, it’s important to know how you can boost your chances of getting a mortgage pre-approval.
Check and improve your credit score
Your credit score is a number between 300 and 900 that indicates your overall creditworthiness. When you are late on a payment, apply for credit, or default on a loan, credit reporting agencies will make a note on your credit portfolio and lower your score.
Your credit score plays a huge role in getting pre-approved on a mortgage loan. A high score means you’ve committed to making loan repayments in the past and are therefore less likely to default. This indicates to mortgage lenders that you’re more likely to pay back your loan on time – which makes them more willing to lend money to you.
Pay down existing debt
Pre-approval is like a physical exam for your finances. Before a lender decides to give you pre-approval on a mortgage loan, they will look into your debt-to-income ratio as well as your assets and liabilities.
Mortgage lenders want to know that your income can cover your monthly mortgage payments, even after paying off your existing debt. Which means existing debt can impact how much you’re able to borrow. Aside from having a high income, paying off any existing debt is the best way to increase your mortgage affordability
Know what you can afford
Before you begin looking for homes, it’s important to set a realistic budget. This will help to contain your search strictly to homes you can actually afford. This will save you a lot of time and potential disappointment.
When calculating how much you can afford, make sure to consider the additional expenses associated with a home purchase including the closing costs (e.g., legal fees, home inspection, appraisal, etc.).
Once your finances are in order, you’re ready to start house hunting. At this point in time, it’s best to get your mortgage pre-approval. This will show the mortgage amount that a lender is willing to loan you and the rate they’re willing to hold for you. It’s important to remember that a mortgage pre-approval is not a guarantee that your actual mortgage application will be approved. But as long as your financial situation stays consistent from the time you get pre-approval to the time you apply for your actual mortgage, then you should not have any issues getting approved.