Getting the desired mortgage is not as easy as it sounds. Potential homebuyers should always be aware of mortgage lending standards. No company wants to face litigation situations due to loan issues. Hence, they have high standards regarding mortgages.
If you have been thinking of buying a home through the mortgage, you have come to the right place. Here you will get to know if it is still too difficult to get a home mortgage and how you can improve your chances of getting one. Let’s get started.
How has the number of mortgages been affected?
The lending companies follow strict rules and requirements. This could be the reason that number of mortgages has been reducing significantly. As per the report by Housing Financial Policy Center, it has been found that there were nearly 6.3 million less mortgages given out in the years between 2009-2015. If the lending regulations could have been more reasonable, the number of mortgages could be high.
Mortgage companies take everything into the concern to see if the home buyer can become delinquent in making the payments. They will not provide you with the loan if anything seems dicey to them. They will take a look at your credit history and see how capable you are of paying back your debts. All in all, your financial past will determine whether they can lend something to you for your mortgage.
Effect on the economy
The housing market is witnessing slow growth. One of the reasons for this is that companies are rarely offering loans to potential homebuyers. You can say that the market is still on the verge of recovery with positive trends. Whether the housing market sees a boom or a bane, mortgage lenders become quite strict in their lending standards.
It is not an out-of-the-box thing to get a mortgage loan, but you will still have to face the challenges as a potential home buyer. Maintain your credit and ensure that you have a good financial position so that no one can deny you from giving the loan. Research thoroughly about several companies and get to know their requirements to ensure a high success rate in getting a mortgage.
What more can you do to improve your chances of getting a home mortgage? Let us find out.
Fix your mistakes
Once you get your credit report, don’t think that everything is accurate. Analyze your credit report thoroughly to see if there are any errors or mistakes that can have a negative effect on your credit. Pay attention to –
- The debts that you have paid.
- The credit report is not yours due to a mistake. For instance – it could be someone else with a similar name or address, or anything could be an issue.
- Misinterpreted information with identity theft being the reason.
- Outdated information.
It is advisable to keep a tab on your credit report at least six months prior to your planning to get a mortgage. This will give you enough time to fix mistakes if any. Get in touch with the credit agency if you find any mistakes in your credit report.
Improve your credit score
A credit report includes a summary of your paying debts and other bills. On the other hand, a credit score makes you know the single number that lenders use to evaluate your credit risk and determine whether you will be able to make timely payments for a loan. Most lenders use the FICO score to evaluate your credit report.
Generally, the higher your credit score, the better the mortgage rate you can get. So, try making efforts in achieving the highest score possible. You can do things like – set up reminders to pay your bills on time, keep your revolving credit balance as low, and stop taking money on credit or using your credit cards.
Complete the down payment as soon as possible
It makes a great impact on the lenders to see that you know the steps to save a big down payment. If you make a large down payment, you tend to reduce your loan-to-value ratio. Consequently, it enhances your chances of getting a mortgage. You can calculate the loan-to-value ratio by using the following formula.
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Mortgage price ÷ Buying price of the home.
Moreover, this indicates better interest rates, smaller monthly payments, and an overall less interest rate for the loan.
Reduce the debt-to-income ratio
The amount of debt you have and your overall income give the debt-to-income ratio. You will get the gross monthly income in percentage by dividing the total recurring monthly debt by your gross monthly income. Your debt-to-income ratio determines your ability to manage the payments every month and how much you can afford to buy a home.
A low debt-to-income ratio indicates that you maintain a good balance between debt and income. A 36% or lower ratio shows that you are going well. 43% debt-to-income ratio seems to be the highest one that can still qualify for a mortgage. Above that, it is very difficult to get a loan due to the fact that your expenses are extremely high in comparison to your income. You can reduce your monthly recurring debt, increase your monthly income, or simply buy less to save money.
The aforementioned methods will definitely give a kick to your process of securing a mortgage. So, keep the above things in mind and make your home-buying journey seamless.