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A home is an important part of life—it’s where memories are made, and families are grown. But it is one of the most expensive purchases you’ll ever make, so like many people, you’re likely asking yourself how to ensure you get approved for a mortgage.
There are many ways to prepare for home ownership—you can use a co-signer, wait for better market conditions, improve your credit score and report, find a less expensive home, ask for an exception, or find another lender. Keep reading to learn about these six tips and how they can help you position yourself for purchasing a home.
- Get a Co-Signer
If your income isn’t high enough to qualify for the loan you’re applying for, a co-signer can help. A co-signer helps you because their income will be included in the affordability calculations. Even if the person isn’t living with you and only helping you make the monthly payments, the bank will consider a co-signers income. Of course, the key factor is to ensure that your co-signer has a good employment history, stable income, and good credit history.
In some cases, a co-signer may also be able to compensate for your less-than-perfect credit. The co-signer guarantees the lender that your mortgage payments will be paid.
It’s important that both you and the co-signer understand the financial and legal obligations that come with cosigning a mortgage loan. If you default on your mortgage, the lender can go after your co-signer for the full amount of the debt. Also, if payments are late or you default, both parties’ credit scores will suffer.
It would be best not to rely on your co-signer to make payments. They are there to appease the lender’s worry that you might be unable to make your payments, not make your payments for you—unless that is the arrangement you’ve made with them.
- Wait
Sometimes conditions in the economy, the housing market, or the lending business makes lenders stingy when approving loans. Regulators scrutinize banks to ensure they’re not taking on more risk than they can handle. If the economy doesn’t support a robust housing market where banks are actively lending, perhaps it’s best to wait until the market improves.
While you’re waiting, home prices or interest rates could fall. Either of these changes could also improve your mortgage eligibility. On a $290,000 loan, for example, a rate drop from 7% to 6.5% will decrease your monthly payment by about $100. That may be the slight boost you need to afford the monthly payments and qualify for the loan.
- Work on Boosting Your Credit Score
You can work on improving your credit score, reducing your debt, and increasing your savings. To work on your credit score, you should first obtain a copy of your credit report. The Federal Trade Commission has helpful information about getting a free credit report on its website. The report will list your credit history, open loans, credit card accounts, and track record for making timely payments. Once you have the report, you can obtain your credit score from one of the three credit agencies
Build Your Credit History
If you don’t have a lot of credit history, it can hurt your chances of getting approved for a mortgage. Consider opening a secured credit card with a small credit limit. Secured cards require you to have an amount of cash saved with the credit card company that matches the card’s available credit
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