How to Get Your Mortgage Loan Application Approved
Are you about submitting your mortgage loan application? You need to prepare your mind that not all mortgage loan applications are approved by lenders. I am not trying to discourage you by telling you this. I just want to provide a guide that will increase your chance of having your mortgage loan application being approved. If you can get it right in the four areas listed below, your application may likely be approved.
High Credit Score: Lenders will check your credit score to determine your creditworthiness. If you have a bad credit score, you may not bother to apply for mortgage loan yet. You will first need to build or improve your credit score. Why is your credit score very important? That is what lenders use to gauge your ability to pay back mortgage. Somebody with history of late or missed payments may likely miss payment again if granted another new loan. But if you have a very high credit score, you will appear good to lenders. Apart from the fact that they may likely approve your mortgage application, you may be able to get the mortgage at a very good interest rate.
Large Down Payment: For people who may not have an excellent credit score, some lenders may not be too particular about it if you can make a large down payment. The standard is to make 20% payment. But if you offer to make down payment of significant amount like between thirty and forty per cent, this will reduce the risk that your lender will need to carry. This may encourage them to approve your mortgage application.
Read Also: How to Get Preapproved For a Mortgage Loan
Low loan to value ratio: Some people usually make a mistake of assuming that mortgage pre-approval is the same thing as approval for their mortgage loan application. You can get mortgage pre-approval and still be denied. Before your mortgage loan is released to you, the lender will engage the service of an appraiser who will inspect and ascertain the value of the property. If the property seems to be overvalued, the property may not be a good collateral for the mortgage anymore. This means that if you default in payment, the lender may find it difficult to get his money back. On the other hand, if the loan is less than 80% of the value of the property, the lender will rest assured that the value of the property will be able to cover the mortgage amount if there is need for foreclosure.
Huge Cash Reserves: Don’t forget that you will need to pay closing costs before your mortgage can be released to you after it must have been approved. However, you may not necessarily be the one to pay this amount. A relation of yours can pay on your behalf as long as the amount is not going to be a loan. But that is not the end of the story. You can increase your chance of getting your mortgage loan application approved if you have a very huge cash reserve that can cover up to 12 months repayment amount. At times, this can help you cover the deficiency in the area of unstable income.