Buying a home is one of the biggest financial transactions people experience in their lives, so it’s no wonder financing is one of the biggest challenges buyers face when shopping for a new home. Even though the money components of home shopping can be stressful, the good news is there are steps you can take to ensure a smoother process and hopefully improve your odds of getting approved for your home loan.
1. Get Pre-Approved Early
If you want to be ready to make an offer on a home as soon as it hits the market, consider getting pre-approved or pre-qualified early in your home search. Having this pre-approval will help you move fast when you find the perfect home. It’s also typically the first thing an agent will ask you to do before helping you with your house-hunting journey. So getting it done before talking to an agent will show that you’re serious about buying and ready to start touring homes immediately.
According to the Zillow Group Consumer Housing Trends Report 2017, the vast majority of people who financed their home with a mortgage in the last year got pre-approved (92 percent), but it’s when they got approved that is the real differentiator.
A little over a third (35 percent) of buyers got pre-approved before involving an agent, while 50 percent waited until they involved an agent before they got pre-approved. Buyers who use an agent are more likely to obtain pre-approval than those who don’t work with an agent, indicating pre-approval is either a prerequisite to securing an agent or highly recommended by their agent.
2. Get a Fully Underwritten Pre-Approval
If you want to take an extra step and do some work upfront to get your offer to stand out, consider asking your lender for a fully underwritten pre-approval. This will not only help speed up the mortgage process even more, but it will also show that you are a serious buyer who has been vetted.
During this process, a lender will verify the information in your mortgage application, your income, assets and debts, and send your loan through the underwriting process so that you can quickly get final approval for a loan once you’ve found your home and your offer has been accepted. So long as your financial condition and creditworthiness hasn’t changed since you were pre-approved, and the home meets other “closing conditions,” you’ll be approved for the loan.
Doing this work up front will allow you to close quickly, opposed to the sometimes-lengthy time frame of these steps once the offer is accepted.
Even though getting fully underwritten sounds like more work initially, you’ll have to go through this process in the later stages of the process anyways, so getting it out of the way early may save time in the long run and help you stand out.
3. Get Your Credit in Check
One of the most crucial component of getting approved for a home loan is your credit score. Not only does it have a huge financial impact by helping determine your interest rate, but lenders will also use this number to determine if you will be approved for a loan. Getting a firm grasp on how your credit is early in your home search could give you the time you need to improve it, if necessary.
Even if you think your score is good enough, it’s a good idea to get a copy of your credit report and take time to review it for any errors. Sometimes, boosting your credit score can be as simple as disputing errors. But if you catch them late, you may not have enough time to dispute before locking in your mortgage rate.
It’s also a good idea to not open any additional lines of credit to reduce further scrutiny from lenders.
4. Demonstrate Financial Stability
When lenders assess whether you qualify for a loan, they’re looking to make sure you’ll be able to repay the loan and not default. You can improve your chances of qualifying by demonstrating that you’re financially stable.
Limiting your spending is one of the easier ways to make sure your lender doesn’t find any red flags when reviewing your financial history. Lenders generally don’t like to see a number of big purchases recently made. And just as much as they don’t like seeing big purchases, they don’t want to see that you’ve missed payments either, so make sure your payments are on time.
To help ensure that you aren’t likely to miss payments, lenders like to see work consistency. If you’re able to, try not to change jobs during this process as the lender might think you no longer have the same funds to afford the mortgage.
5. Put More Down
Even though coming up with enough money for a down payment is often a buyers’ biggest hurdle during the buying process, if you’re able to make a larger down payment (of 20 percent or more), you might up your odds of getting approved.
A large down payment can show lenders you’re serious about buying and have the money to prove it. Outside of a larger down payment giving off the impression that you’re more trustworthy as a borrower to a lender, it can also reduce the loan-to-value ratio, which can increase your chances of getting approved for your loan.
Not only is a larger down payment a plus for lenders, but it can also help make your offer look more attractive to sellers and help them feel more confident that your financing is secure, which could help increase your odds of landing the home over someone else.
6. Move Quickly Once Your Offer Is Accepted
Unfortunately, there are a number of ways mortgages can fall through once your offer is accepted. But if you’re able to speed up the loan, inspection and appraisal periods, you might find yourself coming out ahead.
In some markets, the appraisal can take a particularly long time. So, to speed this process up, ask your lender to order the appraisal the day your offer on the home is accepted. Getting it done quickly may give you time to address any issues that arise.
For example, if the home is appraised for less than the sale price, you can still make concessions with the seller in hopes of getting the loan to go through. Some buyers find luck by paying the difference in cash, getting a second opinion on the appraisal or asking the seller to reduce the price of the home. If the buyer and seller can’t come to an agreement on one of these terms in time, the pending sale can fall apart.
Another step you can take to ensure a smooth, speedy process is to schedule your general home inspection as soon as your offer is accepted. That way if the inspector finds something wrong, you’ll have time to bring in a specialist to take a look. In competitive markets, some buyers even opt to do a pre-inspection to make their offers more competitive, while also removing potential obstacles that could prevent them from getting the house.