Everything You Need To Know To Be Approved For a Mortgage

Approved for a mortgage

You’ve decided you’re ready to purchase your first home. Congratulations! You’re about to embark on a new journey that will bring you many years of happiness. Before buying that dream home, you need to get approved for a mortgage. This process can seem daunting, but many others have done it and so can you.

How Mortgages Differ From Other Loans

Mortgages are long-term loans, typically spanning 15 to 30 years. They allow aspiring homeowners to take possession of the property while repaying the loan over a specific period. Several things set your mortgage apart from other types of loans:

  • You likely need a down payment to secure the loan.
  • Your property serves as collateral for the loan.
  • Depending on your location and financial situation, your loan can reach as high as several million dollars.
  • You might need to meet special requirements to get approved for a mortgage, such as passing a stress test.
  • Before you repay the total balance, you might renew your contract a few times.

When To Start Looking for a Mortgage

You can get approved for a mortgage at any time. However, waiting to find your dream house to tackle this task can have disastrous consequences, especially in a competitive housing market. The moment you know you want to purchase a home, you should start looking for a mortgage.

The sooner you start looking, the faster you can determine your purchasing power. This can give you the parameters you need to find a house you can afford. It can also tell you what you might need to fix in your finances before closing on the home.

How To Prepare Your Finances To Get Approved for a Mortgage

Now that you know when to start looking for your mortgage, focus on how to prepare for this exciting new chapter in your life with these tips:

Start by evaluating your current financial situation. This will give you a clear idea of what you can afford and help you set realistic expectations for the purchasing process.

Save up for a downpayment. The larger your down payment, the lower your monthly mortgage payments. Your down payment is usually a percentage of your total loan amount, so determine how much you are willing to spend.

Start paying off any debts you have. This will improve your debt-to-income ratio, making you a more attractive candidate for approval. However, it is possible to get a mortgage with some existing loans, such as student loans.

Build up your credit score. The higher your credit score, the lower your interest rate. Paying down your debts usually improves your credit score. Consider working with your lender to determine what you need to do. Some homeowners also have had success working with credit repair companies, but choose wisely.

Determine the eligibility of your partner. Are you purchasing your mortgage with someone else? This requires brutally honest conversations about finances. In some cases, you might find it better not to add the other person, even if that person is your spouse.

Which Factors Affect Whether You’re Approved for a Mortgage

Once you’ve prepared to get a mortgage, take a closer look at the factors that will affect whether you’re approved. Here are some of the most important things lenders will consider:

  • Your income and employment situation: Lenders want to see that you have a stable job and income so they can be confident you’ll be able to make your payments on time each month.
  • Your debts and expenses: Lenders want to see how much debt you currently have and your monthly expenses. This helps them determine your debt-to-income ratio and whether you’ll be able to afford your new mortgage payments.
  • Your credit score: Your score is a key factor in deciding whether you’re approved for a mortgage. The higher your score, the better your approval odds.
  • The type of property you’re buying: Approval rates can vary across different property types. Fixer-uppers and multi-family homes, for instance, might have stricter requirements.

What the Mortgage Approval Process Involves

After gathering all the necessary information, it’s time to start the mortgage approval process. Here’s what you can expect.

The first step is to submit your application to a lender. You can do this over the phone, in person, or online through a platform such as our partner, nesto.

Once the lender receives your information, a representative will review it and determine whether you’re approved for a mortgage. If approved, you’ll receive a mortgage commitment letter outlining the terms of your loan.

If the lender denies you, don’t despair. There are still options available to you. You can try another lender or work on improving your financial situation so you can reapply at a later date.

What To Do After Getting Approved for a Mortgage

Getting approved for a mortgage is just the beginning of the journey to homeownership. What comes next will depend on when you choose to get approval for a mortgage in the process. Here are some things you should do:

Shop around for the best mortgage rate. Just because one lender has approved you, it doesn’t mean you have to choose them. Shop around and compare rates from different lenders to get the best deal. Or use a platform that compares rates for you.

Find a real estate agent. An excellent real estate agent will help you find the right home within your budget and help negotiate the purchase price. Agents often have access to inventory not yet listed. This could give you an edge in a competitive market.

Start looking for homes. Now that you know how much money you can borrow, it’s time to start looking for homes in your price range. Keep in mind that you’ll also need to factor in the costs of home inspections, legal fees and moving expenses.

The Bottom Line on Getting Approved for a Mortgage

Applying for and getting approved for a mortgage is complex, but it doesn’t have to be overwhelming. Do your research, work with a lender you trust and gather all the necessary information beforehand.

If you need to do some work on your credit score first, a personal loan can do wonders. Rebuild your credit with a LoanConnect loan so that you can get approved for a mortgage the next time you apply.