Sometimes, when your credit is less than stellar and you’re not making a huge paycheck, getting a mortgage can be tough. But there are some things you can do to make it easier. For starters, put yourself in a banker’s shoes: Would you want to give a few hundred thousand dollars to someone who might just walk away from a house they couldn’t pay for? Of course not. So you’ll need to prove that you’ve “got it all together” by making a good case for yourself. You’ll want to seem like a bright and shiny candidate who can repay the loan if just given the chance.
Here’s some tips that lending experts say can improve your odds of getting approved for a mortgage.
1. Get Your Paperwork in Order
You’ll need W-2 forms for the past two years, paycheck stubs from the past few months, proof of previous mortgage or rent payments for the past year, a list of all your debts, including credit cards, student loans, auto loans and alimony, and a list of all your assets, including bank statements, auto titles, real estate and any investment accounts, Paul Anastos, president of mortgage lender loanDepot’s retail division, said in an email.
2. Don’t Miss Any Payments
This one is pretty serious, because you want to show you have a really good record of paying your bills. (If you’re curious about your past record, you can view your free credit report card, updated every 14 days, on Credit.com.)
“If you miss a payment during the loan application process — particularly a mortgage payment — and the lender re-checks your credit report, it could result in a much lower credit score and could derail the loan application,” said Anastos.
Remember, your credit score can keep you for getting a mortgage or affect your mortgage rate (more on that below).
3. Make a Large Down Payment
If a lender sees you’re able to pay for a percentage of the house, the odds may tilt in your favor. The larger your down payment is, the less likely you’ll walk away and let the property go into foreclosure, because you’d very likely lose that downpayment if the house foreclosed.
“Having a large amount of cash to put down on a house is also an indicator of how you handle your finances,” Mindy Jensen, real estate agent and community manager of BiggerPockets.com, said in an email. “Banks want to give loans to people who will pay them back.”
4. Carefully Consider Asking for the Highest Loan Amount
“You might be pre-approved for up to $250,000, but the closer you get to that limit, the less likely you are to be approved. It only takes one small thing to push finances into the danger zone, and one unexpected expense can steer you into ‘DENIED’ territory,” said Jensen.
5. Improve Your Credit Score
Most credit scoring models run from 300 to 850. You generally need a score of 620 or higher to qualify for a conventional mortgage and a score of 740 or higher to net the best rates. So, if your score is looking shoddy, you may want to put some work into improving your standing before you apply.
Also, pay down your debts because the less debt you have, the more likely you are to be approved for a loan. “Lenders like to lend money to people who don’t really need it, as opposed to people who are desperate,” said Jensen.
6. Avoid Big Purchases Until After You Close
“If you are hovering near the loan limit, leave your credit cards alone,” said Jensen. “One large purchase — say a new TV for your new house, or buying/leasing a car right before closing — can completely derail your loan application. Wait until the ink is dry on all the papers before you buy a new toy.”