How to Boost Your Odds of Getting Approved for a MortgageMore than 2.5 million people were turned down for mortgages in 2010, according to the Federal Financial Institutions Examination Council. That's about 23% of all those who are seeking a loan to buy a house.

Compared to just a few years ago, the number is quite low- but it's sure not because lenders are making it easier. It's because fewer Americans feel ready to buy a home.

With statistics like those, it's clear the housing market isn't going to lead the nation out of its economic doldrums, and the numbers are none too encouraging for anyone eying a real estate purchase. Whether you're a first-time home buyer looking to capitalize on historically low interest rates, or a homeowner hoping to upgrade, figuring out how to get a smile out of a lender is task No. 1.

So what do banks want, anyway?

1. Strong Credit

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If you have a weak credit score, a history full of late payments, or you owe a hefty chunk of change on credit cards and elsewhere, you're unlikely to get the go-ahead. You can also get harpooned if your credit profile changes in mid-process, says Keith Gumbinger, vice president of HSH.com, a provider of mortgage data. So keep things consistent while your application in under review.

Consistently making only the minimum payments on your debt suggests to lenders that you can't pay the full balance and may be under financial stress, says Dana Dratch, a regular contributor to Bankrate.com. Further, opening a raft of new credit lines in a short period of time is a tell-tell sign that your finances are shaky.

2. Realistic Expectations

You think you can afford to buy, but can you really? And more importantly, can you document that in terms of income and assets?

Many lenders now require 20% down on loans other than those that are FHA-insured, and those carry an additional cost for public mortgage insurance. If they''re willing to lend to you with less than 20% down without that government guarantee, they'll certainly insist on private mortgage insurance, points out Linda Sherry, director of national priorities at Consumer Action.

The lender will do the math, looking at your debt-to-income ratio. Conventional financing limits are typically "28/36," meaning that no more than 28% of a borrower's income should go towards housing costs, and no more than 36% of income is applied towards all debts, such as mortgage, credit cards, and car and student loans, says Greuling. If a borrower's debt is too high to support a mortgage payment, lenders will typically reject the applicant.

3. Nobody Else's Problems

You wanted to be a good person and help out a loved one, but co-signing on someone else's debt can work against you. "This shows up on your credit report as if were your own debt, and it puts you at risk if the person you co-signed or stops paying, pays late or misses payments," warns Dratch.

How to Get Ready to Apply

Start preparing for your mortgage application well in advance. Pull your credit reports, review them for errors, and if you find any, ask the bureaus to correct them. Get your FICO scores so you know how well you align with pricing incentives or penalties in the market, says Gumbinger.

Save up for a down payment, get your financial accounts in order so that you can produce statements for them on demand, and pay down your outstanding debts more quickly, says Gumbinger. Forget about taking on new debt for a car, or running up a credit card before or during the home loan process, says Greuling. Increasing what you owe can decrease your credit score, and it's a red flag to lenders,

"Even if your credit score isn't great, you should be able to get an FHA-backed loan. In theory, they are available for borrowers with FICOs down to 580 -- but in a practical reality, FICO 620 is the de facto bottom," says Gumbinger. "That said, you'll still need full documentation, at least a 3.5% down payment, and some additional cash for mortgage insurance and reserves."

Says Sherry, "If you have to borrow from family to come up with a down payment, be up front about where you are getting the money from. Don't overstretch the amount you can borrow."

Also, even if you're ready to say adios to your employer, don't switch jobs around the mortgage process, as this too can raise lender's eyebrows.

The bottom line: Be squeaky clean, and make it tough to say no.


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18 Comments

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jhon.morinho

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July 16 2013 at 1:01 PM Report abuse rate up rate down Reply
Jason Shoraka

Great info, i have some helpful info also!

June 01 2013 at 7:05 PM Report abuse rate up rate down Reply
donut999

Most of the people ragging about the difficulty they are having simply should not be approved for a mortgage. It took a disaster in the housing and mortgage markets to make that clear. So quit the crybabying, get your bills current, your credit report not just marginal, but looking good, and try it again in a couple of years. Take 30 seconds to change chairs with the lender. They are not necessarily the bad guy. If they cannot conform to peddle the paper, you are not going to get a loan. Grow up, would you lend you money?

October 12 2011 at 7:17 PM Report abuse +1 rate up rate down Reply
ironcyde

& be prepared for your lender to give you the runaround till you just about want to die.... & if you DO go w/ FHA right now, be prepared to deal w/ the most retarded underwriters ever who want nothing more than to see you run around the block all day, every day, just to do it... 29 days into the process & you'll STILL need bank statements every goddamned day..... does FHA REALLY need to know where you got a grand or 2 ? Really ? & for the effort they are going to jam you for between $ 200.00 & $ 500.00 per month, for 5 years, just because you did "business" w/ them... which is $3 or $ 4k per year, for what ? They're actually contributing to your own potential demise ! Good luck going conventional.... if you have 20% cash down & a 725+ score, then what i wanna know is what you did to get it....

October 12 2011 at 6:59 PM Report abuse rate up rate down Reply
Liquid

We published a blog not too long ago about this as well. We'd love some feedback on our thoughts!
http://getliquid.com/news/2011/7/20/5-ingredients-to-get-a-mortgage-approved-in-a-tight-market.html

October 12 2011 at 5:58 PM Report abuse rate up rate down Reply
Johnnie Kay

you need to owe a lot to get good credit, you just need to make sure you make all your payments and don't have anything outstanding.

-JK http://www.longest.com/coupons/godaddy-coupons-and-promo-codes/

October 12 2011 at 5:35 PM Report abuse rate up rate down Reply
dabrownman

Well here is the new definition of a fool. Anyone who thinks that the presidents of Iran and the USA did not approve of the plot to bomb the Saudi Ambassador and the gun running plot Fast and Furious to destabilize and overthrow the Mexican government while killing 2 US agents and hundreds of Mexicans.

If I was the President of Mexico I would immediately have Obama indited and a request for extradition made to get him interred in a Mexican jail without bail until he can be found guilty or not and shot if he is.

October 12 2011 at 4:17 PM Report abuse +1 rate up rate down Reply
2 replies to dabrownman's comment
ironcyde

Relax, son......

October 12 2011 at 7:00 PM Report abuse -1 rate up rate down Reply
savemycountry911

NEVER relax brownman.

October 12 2011 at 9:53 PM Report abuse +1 rate up rate down Reply
pfjw

Lemme see:

a) Have a good credit history - meaning having paid past bills on time, and be current with all other payments.
b) Don't owe too much.
c) Do not apply for a mortgage not supported by reliable income.
d) Have some savings for a down payment.

Why didn't I think of that?

This is news?

October 12 2011 at 9:39 AM Report abuse rate up rate down Reply
dabrownman

Put 20% down and don't borrow it from someone else. If some relative gives it to you as a free gift - fine.
Buy what you can afford and need.
Don't try to borrow more than 2 times your gross income.
Don't lie to anyone about anything including your lender.
Make sure you have a really good credit score by paying off all of your bills on time.
Be nice. It also helps not to be a lefty so wear nice a tea party shirt , not a t-shirt, to you loan meetings.

October 11 2011 at 6:44 PM Report abuse +2 rate up rate down Reply
2 replies to dabrownman's comment
evd10

"wear nice a tea party shirt , not a t-shirt, to you loan meetings." I think you're living in the past. I just did a refinance. Never saw anyone until it was time to sit down and sign the papers. Everything was handled on the phone or through the mail.

October 11 2011 at 7:35 PM Report abuse -1 rate up rate down Reply
1 reply to evd10's comment
dabrownman

You were already approved for a mortgage and have a mortgage history. You also had to have enough equity in your home and not be upside down on the value of your hpme.

October 11 2011 at 9:54 PM Report abuse +1 rate up rate down
ironcyde

Are you for real ? It also helps to not be a plotical douchebag....

October 12 2011 at 7:01 PM Report abuse -1 rate up rate down Reply
1 reply to ironcyde's comment
savemycountry911

Posted like one.

October 12 2011 at 9:54 PM Report abuse rate up rate down
some12bo

This is not the time go into heavy debt. Deflation cannot be prevented after credit inflation runs it's course. We have borrowed for decades. Inflated the money supply. Now the pay back time has arrived. Google for "DEFLATIONARY CRASH" to understand why the money supply will deflate!

October 11 2011 at 4:57 PM Report abuse rate up rate down Reply