Let’s cut right to the chase – getting a mortgage is essential to buying your dream home. Unless, of course, you have a massive inheritance to your name. If you’re willing to level up in life with your own home, there are a few things you must do to prepare for the mortgage process. It goes without saying that your credit must be in an excellent state. The higher your score, the lower your interest rate.
If your credit is less than acceptable, we suggest you employ the following tips to improve it before applying for a loan. After all, an application with a bad credit score is as good as rejected.
1. Zero Debt, Zero Problem
The first thing lenders will look at is your DTI, i.e., debt-to-income ratio. If you have more debt than income, lenders will naturally doubt your ability to pay your monthly installments, thereby leading to a rejected application.
If you have outstanding debt, we suggest you get them out of the way before taking on one more hefty one. Additionally, when working on bettering your credit score, try not to take on additional debt. We understand that emergencies come unannounced but, what you can do is prevent unnecessary purchases.
2. Check Credit Reports for Errors
We suggest you check your credit reports every year, as this will enable you to know where your credit stands and help you catch any inaccuracies. More often than not, you might find missing payments, paid debt listed as outstanding, or even traces of identity theft. If you notice any such error, dispute it immediately by reaching out to a credit bureau.
3. Request A Credit Limit Increase
Credit cards with low credit limits won’t cut it for your mortgage application. Now’s the time to request one with an increased credit limit. If you’re habitual of clearing your payments on time, your lender should have no problem doing so.
With an increased credit limit, you will be able to reduce your credit utilization ratio as well. This pertains to how much of your credit you use on a monthly basis. About 30% of your credit score is made of your credit utilization ratio. For clarification’s sake, if your monthly limit is $1000 and your expenses amount to $500, that makes 50% of your credit. Whereas, if you have a $2500 monthly limit with the same expenses, you utilize only 20% of your credit. In your lender’s eyes, this will stand out as a good quality.
Bottom Line
When you’re looking to impress lenders, you have to put your best foot forward, even if that means taking a couple of months to improve your financial situation first. Owning your dream home is a rewarding experience, and every step you take to achieve it will be worth it in the end.
