In a previous post (see link below), I discussed several techniques/tips that you can use to get a feel for how much of a home loan you can afford.
However, this post was written with the assumption that you have the ability to be approved for the home loan.
Since not everyone is fortunate enough to fall under this category, I figured it would be a good idea to devote a post to explaining the various ways to improve your chances of being approved for the quantity of home mortgage or reverse mortgage you desire.
Ways to Improve Your Changes of Being Approved for a Home Loan
- Obtain a free copy of your credit report and review it
- For information on how to obtain a copy of your credit report, please see my previous post at the following link – My Money Blog – Monitor Your Credit Report Closely.
- After obtaining a copy of your credit report, review it for any errors or misrepresentations, as I describe in the blog post above.
- If you do not have much of a credit history, you will want to build some for yourself! For information on how to build up your credit score from nothing, see my four part post series at the following link – My Money Blog – Build Your Credit Score From Nothing
- Start saving up cash reserves for a down payment in your high yield taxable money market account
- This topic will be discussed in detail in a future post. However, for now, let’s just say that you should shoot for having a 20% down payment.
- Try to reduce the amount of debt you are currently carrying.
- As we saw in the post about how much of a mortgage/house you can afford, banks will look to make sure you do not have more than 40% of your total income in debt each month. By paying off your debt, you are improving the way you “look” financially to creditors.
- Additionally, as we have discussed previously, you will want to aim for paying off your high interest consumer debt first (and especially credit card debt).
- Do not lie on your mortgage pre-approval application.
- This may seem like a given, but it is especially important to be open and honest about your financial situation. Besides, by telling the truth, you are safeguarding yourself against the possibility of getting in over your head on a home loan.
- Have a firm handle on the current snapshot of your finances and what funds are and will be available to you.
- Before applying for a mortgage, you will want to make sure you calculate the value of all of your investment and debt accounts in order to determine your total net worth. You will have to write all of this information on your mortgage application anyway.
- Additionally, make sure to make note of the amount of cash reserves you have on hand that would be available for a down payment.
- Also, be sure to include any potential sources of gift money that may become available (example – $$ from your parents, $$ inheritance money from a relative, etc).
- Know if you will be planning to use your 401k or IRA funds to help with your down payment. See the post at the following link for more information – My Money Blog – Innovative Ways to Obtain Funding For a Downpayment
- Get all of your documents in order
- You will want to make sure you have the following documents on hand:
- Proof of two years of residence history and employment
- Copy of your current paycheck
- Tax returns from the last 3 years
- Get a co-signer on the loan
- As a last resort for if your finances are less than ideal, you can have a second person co-sign on the home loan. However, this will make them financially liable for the loan amount, so you will probably want to avoid this option if at all possible.
I hope these tips help, and as always, please let me know if you have any questions.
Keep on learning!
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