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2 Ways To Improve Your Chances Of Being Approved For A Mortgage

30 November 2016

Jackie Watts

When applying for a mortgage loan, an underwriting company will look at your financial stability to determine whether you're in a position to take on the mortgage. Here's what you can do to put yourself in the best position possible to be approved for a mortgage.

Improve Your Credit Score

One of the major criteria mortgage underwriters use is your credit score, which is meant to be a quantitative assessment of your financial responsibility. A credit score is a three-digit number based on five criteria, which are each weighted differently:

• your payment history (35 percent)
• your debt load (30 percent)
• the length of your credit history (15 percent)
• your credit mix (10 percent)
• whether you have any new credit (10 percent)

The minimum credit score you need to qualify for a mortgage and purchase a home depends on the type of mortgage you're applying for. According to Credit Sesame, for example, FHA mortgages require a minimum score of 580, and Fannie Mae and Freddie Mac only go to applicants whose score is at least 620. In general, a score of 600 and above is desired by mortgage companies, although a high score isn't a guarantee that you'll be approved for a mortgage.

There are several ways to improve your credit score. Paying down debt, making all your payments on time and avoiding new lines of credit (such as credit cards offered by retailers) are some good actions to take.

Pay Down Your Debt

Paying down your debt has another benefit. Along with helping improve your credit score, it will also improve your debt-to-income ratio. Your debt-to-income ratio shows how much of your income is going towards debt payments. It's expressed as a percentage.

Mortgage programs have maximum debt-to-income ratios that applicants can have. If yours exceeds the maximum, you won't be approved for the mortgage. The maximum debt-to-income ratio you can have varies from mortgage program to mortgage program, and it can even vary within a mortgage program. Fannie Mae has a maximum ratio of 36, 45 or 50 percent, depending on how strong the rest of your application is.

To calculate your debt-to-income ratio, add up your minimum debt payments in a month and your total income for the month. Then divide the debt payments by the income, and multiply by 100 to get a percent. Paying down your debt so that your minimum payments are lower will reduce this percentage.

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