Worried About Getting Approved for a Mortgage?

Worried About Getting Approved for a Mortgage?
Not sure if you can qualify for a loan? There are steps you should take before you start shopping.

Want to buy a house but spooked by the current mortgage news? Worried you may not qualify? Don’t panic. Follow these steps to know just where you stand.

Know your credit score
Your credit score is one of the primary indicators of your ability to repay the loan, so it’s a good idea to know it before you apply with a lender. For the most part, if your score is above 760 you can expect to get the best rate a lender has to offer; if your score is below 660 you may have trouble getting approved until you improve your credit (depending on a number of other factors). You can get your free credit report and score at  GetSmart. Or go to http://www.annualcreditreport.com to obtain a copy of your report. (You generally have to pay to obtain your actual score.)

Check affordability
Check affordability and then check again. Most lenders want to make sure your mortgage payment doesn’t exceed 28 percent of your income before taxes, and your total recurring debt (including housing expenses) doesn’t exceed 36 percent.

Do the math
If your current housing expenses and recurring debt – car loan, student loans and other loans – is greater than 36 percent of your gross income, you may have trouble affording a home. And don’t forget to take into account additional expenses involved in home ownership: taxes and insurance, and house and lawn maintenance.

Save for a larger down payment
A 10 percent down payment puts you in a lower risk category than a borrower only putting 5 percent or less down. A 20 percent down payment has the added benefit of saving you the additional expense of private mortgage insurance.

Talk to more than one lender
While lenders often follow the same general guidelines when approving borrowers, there is a lot of variation in the industry, so it’s worthwhile to shop around. Some companies specialize in only certain types of mortgages, whereas others may have a wide range of products. If it starts to feel like a lender is trying to shoehorn you into a particular loan, take your application elsewhere to find a loan that fits your needs.