Important Financial Considerations in the Mortgage Approval Process

It can be far too easy to get swept up into the idea of buying a home without knowing how to position oneself to get approved for a mortgage loan. There are a number of financial considerations applicants should be aware of before and during the mortgage application process. Some actions may inadvertently make it less likely for an applicant to be approved for a mortgage loan. Avoid these financial pitfalls when applying for a mortgage loan.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

Don't Lower Your Credit Score

Some behaviors can serve to lower one's credit score. Do not apply for additional credit lines a short time before applying for a loan. Doing so temporarily lowers one's credit score. Avoid making large purchases, such as buying new appliances or a vehicle, as this can potential increase one's level of debt and change an applicant's debt-to-income ratio. Applicants deemed risky borrowers are generally those that exceed a threshold of 43 percent. Avoid defaulting on any existing loans, making payments after due dates, or changing employers right before submitting an application. All of these actions can serve to make it harder for a lender to feel secure with approving a mortgage loan.

Those with good, but not great credit, need to do all within their power to show that they can make regular timely payments, have a consistent source of income and a manageable level of debt. Individuals with poor credit scores, or a score of 579 or less, may need to take time to get their financial situation in order before applying for a conventional mortgage loan. Better credit scores can translate to lower interest rates and paying less back to a lender over the lifetime of the loan.

Don't Max Out Credit Cards

Potential borrowers want to do their part to look like an ideal applicant. Those interested in taking out a conventional home loan may want to make sure that their credit card balances do not exceed 30 percent of their maximum limit. Some may have to pay down larger balances to improve their chances with a lender.

Future homebuyers can find it hard not to exceed certain limits and decide to close rarely used credit cards. This is not a good idea for potential borrowers. Rather, store such credit cards securely away to avoid using them. Closing older credit lines after they are paid off is generally not recommended for those looking to take out a home loan. This can serve to dramatically alter an applicant's debt-to-credit ratio.

Should You Co-Sign for A Loan?

Potential borrowers may not be aware that co-signing for another person's loan may make it harder for them to obtain a mortgage loan. This makes the co-signer responsible for the loan if the original applicant cannot make regular payments. If they default or make late payments, the co-signer is also affected and may have their credit score lowered. Through co-signing the individual is also taking on additional debt which can work against them when their debt level is reviewed by a lender.

Do Know Your Credit Score

Couples who want to purchase a Santa Monica home should know that the credit scores of both parties are reviewed by lenders. It may be necessary for one partner to work on their credit score before a couple applies for a home mortgage loan. Financial lenders want to know about an applicant's credit score and credit history. An applicant with a low credit score may find it difficult to partner with a lender or may be subject to additional terms or conditions. Anyone thinking about taking out a mortgage home loan should first review their credit report. Exceptional FICO scores of 800 or more allow lenders to feel secure offering a mortgage loan to an approved applicant. However, those with good or very good FICO scores are also often approved.

Individuals who do not qualify for a conventional home loan have other options, like FHA and VA loans. Speak with an experienced lender to learn what to do before applying for a home loan.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.