Buying a home is probably the biggest investment you will ever make, and if you are like most people, you will need a mortgage, in order to make this possible. While there are no promises that you will be approved for the loan you desire, there are several steps you may take to increase your chances of getting approved. Continue reading for tips on how to increase your chances of acquiring a mortgage.
- Check Your Credit Report
Lenders will check your credit report, a detailed report of your credit worthiness, to determine if you qualify for a loan and at what rate of interest. You can monitor your credit report throughout the year.
- Correct Any Errors
Once you have your credit report, don’t assume everything is correct. Take a close look to see if there are any errors that could negatively affect your creditworthiness. You should watch out for:
- Debt already paid
- Information that is not owned by you due to an error (for example, the creditor has it due to similar names and / or addresses or due to an insurance number social security information)
- Information that does not belong to you due to identity theft
- Information about a former spouse that should no longer be there
- Outdated information
- Incorrect entry for closed accounts
It’s a good idea to check your credit report at least six months before applying for a mortgage so you can see and remedy any inaccuracies. If you discover an error on your credit report, contact the credit reporting agency as soon as possible to correct the error and file a complaint.
- Improve Your Credit Score
Although a credit report summarizes your history of paying debts and other bills, your credit score is the only number that any lender will use to assess your credit risk and determine how likely you are to make payments.
In general, the higher your credit rating, the better the mortgage rate you can get. So, it’s worth doing everything you can to get the highest possible score. First, check your credit report and correct any mistakes, then work on paying off debts, set payment reminders so you can pay your bills on time, keep your credit card and revolving balances low, and reduce the amount of your debt (e. g. your credit cards). If you happen to be in Canada and possess a bad credit score or wish to opt for zero down payment mortgage Canada, the possibility persists but such possibilities are rare.
- Reduce Your Debt-to-Income Ratio
A debt-to-income ratio compares the amount of your debt to your total income. It is determined as a percentage by dividing your entire monthly recurring debt by your gross monthly income. Lenders look at your debt-to-income ratio to measure your ability to manage the payments you make each month and determine the amount of housing you can afford.
There are two things you can do to lower your debt-to-income ratio, both easier said than done:
- Reduce your monthly recurring debt.
- Increase your gross monthly income.
To lower your monthly recurring debt, the most crucial thing you can do is to buy less. Take a close look at where your money goes each month, find out where you can save, and put it to use.
While there is no easy way to increase your income, you can try to find a second job, work overtime at your main job, take on more responsibilities at work (and get a raise), or complete courses / licenses to increase your skills, marketability and earning potential. If you are married, you can increase your household income by having your spouse do additional work, or return to work if one of you has stayed home.
The Bottom Line
Tighter lending practices have made it difficult to obtain a mortgage. The good news is that there are several steps you can take to improve your chances of getting a loan, especially if you start early. Begin by reviewing your credit report and correcting any errors, then work to improve your credit score, lower your debt-to-income ratio, and actively save for your down payment. If you want to secure a mortgage in Ontario, Toronto, or any other city in Canada, shake hands with Kachet, which offers a unique step-by-step system to assist you in obtaining the best loan.
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