Millions of people will apply for and get approved for a home mortgage in the U.S. this year. About twice that number will see their homeownership dreams dashed because they were rejected.
Commonly, there are a few reasons why an applicant would be rejected. Presuming that you have OK credit and don't have a bankruptcy or foreclosure marring your record, there are a few tricks that you can use to increase your odds of getting approved using a proven method that works like a charm.
Reduce Credit Card Utilization
Credit card utilization should never exceed 40 percent of your given balances, and never more than 45 percent on any one card, explains Nerd Wallet. Banks look at this in the manner that you are a responsible borrower. To help your loan process out, make sure you pay down these balances to a reasonable threshold, which will improve your odds at getting approved.
Don't Ding Your Credit with Inquiries
It can be tempting to apply to multiple banks to get a home loan. The experts at MyFico say that you instead take your time to research a bank and use one or two to run your apps. This will create fewer credit inquiries; too many hard inquiries can demote points off your credit report. The fewer the hard inquiries, the more solid that your credit rating will remain.
Plan on Putting 20% Down
Most banks want to see an active credit score of 580 or higher (FICO) and at least 20 percent down on your home loan, advises Zillow. If you don't have 20 percent saved up just yet, you can explore your options with grants and new home buyer loans. Or you may have to wait a while longer to get that dream house. Alternatively, you can pay a higher monthly payment by getting a loan that has insurance attached in case you default, called PMI.
Finally, before you even step foot out the door to start house hunting, make sure you are armed with a preapproval letter. Typically, you will have to submit a substantial amount of documentation to the bank as well as have your credit run before getting preapproved. However, doing so enables you to know what amount you are able to borrow from the bank and what expected down payment they'll require. With this letter in hand, you can shop for that new house with confidence.