Applying for your first mortgage is exciting and terrifying at the same time. Lenders these days can be harsh as credit requirements are strict. If you’re thinking of applying for a mortgage, be sure to take care of the five things listed below beforehand to improve your odds of approval.
#1 – Use No More than 35% of Your Available Credit
Your lender will want to see that you can use credit responsibly, so make sure that you reduce your balances to 35% or less of the available limit. While it may seem ideal to get those balances to 0% usage, think again – this may indicate that you don’t use the credit available to you, and that can put lenders off. Your goal here is to show responsible usage and showing zero usage will work against you. If you have a card with a $2000 limit, consider carrying a balance of about $350 to $700, and do this for every individual credit card you have.
#2 – Make Sure You’re Using Seasoned Assets
If you’re giving your lender a list of assets that can be used to approve your mortgage, be sure that those assets have been seasoned for more than 60 days. Otherwise, they’re considered too “new” and your lender may not be able to count them at all. Any large deposits that aren’t your paycheck must be sourced, so be sure to ask your lender what to do with a contractor check or gift before you deposit it in the bank.
#3 – Start Gathering Documents Early
Getting a mortgage will leave you feeling as if you are drowning in paperwork, and for many buyers, this is the most frustrating part of the process. Get a head start on the documentation by gathering what you need early on. You’ll need your driver’s license, your W2s, copies of tax returns, pay stubs, bank statements, work history, and more in order for your loan request to go to underwriting, so the faster you can get them, the better off you will be.
#4 – Know Your Credit Score and History
There’s nothing worse than preparing for a mortgage only to go into your bank to be turned down due to a credit score that you weren’t even aware of. You can check each of your three major credit reports for free, so do this early on and dispute anything that doesn’t belong. Your FICO scores are available for a small fee, and if you have certain accounts – such as Discover credit card – you can get one of your FICOs for free each month through those providers.
#5 – Know What to Expect
Finally, one of the best things you could possibly do involves educating yourself as much as possible on the entire process involved in getting a mortgage – from start to finish. Not knowing is the worst part of the process for many people, and this alone can ease your mind. Staying ahead of the lenders and anticipating the questions they will ask or the documents they will want can help to expedite the process, as well.
Getting approved for your first mortgage is a celebratory event and one that you will remember for the rest of your life. The five tips above are excellent ways to make certain that you have done all you can to improve your odds of being approved the first time around.