Buying a home is one of the largest long-term financial commitments that you can make in your life. The mortgage approval process that comes with buying a home can make you feel like you have to jump through hoops to gain approval, however, it doesn’t have to be like that if you are prepared before applying. Our expert Mississauga mortgage brokers team is here with some tips to help make the mortgage loan approval process run a bit more smoothly.
Tip One: Get Your Credit In Order
Your credit score and credit history play a large role in the mortgage application process, so you’ll want to make sure everything is in order ahead of time. The first thing that you should do is get a hold of your credit report. Your credit report holds a lot of helpful details that can help you see what your strong and weak areas are. For example, if a weak area is that you have some high-interest rate credit cards with balances close to the limits, you can pay these down to help boost your credit score. You should also check for any errors on your credit report that are impacting your score, such as accounts that aren’t yours or those that you have paid off but are still showing as unpaid on your credit report. If you do find errors, you will need to contact the credit bureau to have them fixed.
Tip Two: Get Familiar With Your Debt-to-Income Ratio
Your debt-to-income ratio is another area that plays a big role in the mortgage application process. Your debt-to-income ratio compares your outstanding debts to your income. A high debt-to-income ratio is a red flag for lenders because it tells them that you have more debts outgoing than funds coming in, which could lead to problems paying your debts off. Even if you have a pretty good credit score, a high debt-to-income ratio can result in being rejected for a mortgage. Your total debt-to-income ratio should be no more than 44%. You can lower this by paying off or consolidating some debts.
Tip Three: Create a Credit Utilization Chart
Paying down your debts may seem a bit overwhelming for some, but there are steps that you can take to get them paid down fairly quickly. The first thing you can do is review your budget and cut out bills that aren’t a necessity, such as subscriptions, frequently dining out, and making impulse purchases. If you are serious about paying your debts, you can forego that holiday and put those funds towards those debts.
You don’t have to focus on paying a debt to the last penny. Your goal with this step is to lower your debt-to-income ratio so that lenders can see that you can handle your debts. Pay off any late or delinquent debts first, so that your accounts are up to date. You can then focus on paying down any high-interest rate debts.
Tip Four: Cosigner and Collateral
Some people have a low credit score because they don’t have a long enough credit history. One way to help get a mortgage loan approval is to have some collateral or a cosigner. Both will help make your mortgage application more appealing to lenders. Collateral would be something that has significant value and that matches the loan amount, like a vehicle that has been paid off.
A cosigner is someone who has a very good credit rating and will be on the loan application with you. This means that lenders will consider their credit history along with your own. One thing to bear in mind is that, if you do not make your repayments or default on the loan, the cosigner will then become responsible for the debt, which can have a negative impact on both of your credit histories.
Tip Five: Always Shop Around For Lenders
A mistake that borrowers often make is to go with the first lender they can get approval from, such as their bank. The problem with this is that it limits the variety of mortgage products to the lender’s own and you may not be able to get approval for a conventional mortgage. However, if you use a mortgage broker, you will have a better chance of finding a loan package that you can qualify for. Working with a team of Mississauga mortgage brokers means you have access to a larger pool of lenders and mortgage products, as well as having access to lower rates that you won’t always find in the mainstream. You will also be protecting your credit score because, rather than having several lenders accessing your credit report, which results in a hard credit inquiry, a broker only needs to make one inquiry. Too many hard searches against your credit report in a short period of time can lower your credit score.
With some good budgeting and careful planning, you are able to get your finances and credit in better shape, helping your chances of getting approved for a mortgage loan. If you have questions about the mortgage products available to you, give our expert Mississauga mortgage brokers team a call today!
