How to Be Approved for a Mortgage
Applying for a mortgage is a major act in your financial life. You are committing yourself to make payments on a house or other property for most of your working life. Obviously, this is something that you do not undertake lightly -- and similarly, the financial institution that lends the money to you is not going to take it lightly either. As a result, applying for a mortgage is a far more difficult procedure than applying for more ordinary sorts of loans.
First, there is the application. While the application for a credit card or a loan to buy furniture or a car generally fits on one side of a page (and maybe not even that), the application for a mortgage is generally a fairly hefty packet. You will want to read it very carefully and understand exactly what facts are being asked on each question, so that you will be able to provide the information that is required. You may even want to write up your answers on scratch paper before actually filling out the forms you will turn in. Certainly you will want to make photocopies of the completed forms before turning them in,
Next comes the credit check, which is also far more intensive than those for more ordinary loans. If you have any problems with your credit history, you may get rejected on this account. Thus it is generally wise to request your credit report from all three of the reporting agencies and examine them carefully for errors such as accounts that have been paid off showing as still open, or accounts belonging to somebody else on your record (for years my credit report showed accounts held by one of my brothers because his Social Security Number is only one digit off from mine and our first names are similar).
If you find errors, you will need to take steps to correct your credit report. Although it may sound daunting, this process is really more a matter of documenting the errors, showing what the correct information is, and requesting that it be changed.
More problematical is correct information that does not show you in a good light and makes financial institutions regard you as a poor risk. If this is the case, you are going to have a lot more work to do. You may have to spend months or even a few years getting your credit report back into good shape by making a conscious effort to cut back on your spending, pay down your credit cards, and otherwise reduce your level of indebtedness in proportion to your income. It may mean deferring your dreams of homeownership for some time, but when it is over, you will be able to enjoy your new home without being overburdened with bills and constantly stressing about how you're going to meet all your obligations.
Finally, there is the issue of the down payment you bring to the table. Traditionally home buyers are expected to put down 20%, but smaller downpayments are possible if one is willing to pay for private mortgage insurance to protect the lender against a possible default. PMI is often what makes it possible for first-time home buyers to get in a home, since they have no equity built up in a previous home, and often haven't been able to save that much otherwise. If you are able to make a larger downpayment, it will lower the amount you will be borrowing, but you do not want to maximize your downpayment at the expense of other savings, particularly an emergency fund and money to make routine maintenance on your home.
The process of getting approved for a mortgage may seem overwhelming, but if you break it down into sections and learn exactly what is required for each part, it can be made far more manageable. You may want to talk with friends and family members who have recently bought a home to get a better idea of just what it will involve.
Share this
