8 Tips to Help You With Your Mortgage Application

Getting a mortgage is usually an important event in your life – and buying your own home for the first time is very exciting. The application process can appear intimidating, however, with financial assessments and multiple document submissions. It’s understandable to be apprehensive, but there are ways to ensure you handle your mortgage application well when the bank says no.

Preparation is one of those ways. You should find out exactly what lenders expect from you and your paperwork to ensure your application is in the best possible position. Positive credit histories, reliable income and a healthy debt-to-income ratio can also help improve the terms of your mortgage.

Of course, all situations are different and there is no single piece of advice that will ensure mortgage approval, but there are some classic tips that are worth considering. Ultimately you need to put your financial health in the best possible position and show yourself to be a sound investment. So let’s explore some top tips that will help you approach your mortgage application with confidence and clarity.

Understand the mortgage application process

The thought of applying for a mortgage can be quite daunting, but familiarising yourself with details such as your credit score and mortgage types will only guide you towards the right decision.

Be familiar with your credit score

Your credit score plays an important role in determining the likelihood of you being able to repay your mortgage on time. It’s essentially a snapshot of your financial history which acts as a reference guide for lenders. Here are some fast facts:

• Request Your Credit Report: Get a copy from the main credit reference agencies to ensure your record is free of any mistakes that may hinder your score.
• Know the range: Credit scores range from 300 to 850. A high score greatly increases your odds of getting the best deals.
• Enhance your score: Ensure you pay your bills punctually, lower your debt before you apply for a mortgage and avoid opening new lines of credit.

Be familiar with mortgage types

Mortgage types govern the terms and interest rates of your repayments, so picking the right option is essential. There are many different types to consider, but the main ones include:

• Fixed-rate mortgages: Fixed-rate mortgages secure your interest for the entirety of the loan period meaning your repayments are constant.
• Variable/Adjustable rate mortgages (ARMs): A lower interest rate is offered upfront which can be altered in the future and will affect repayments.
• Government-insured loans: FHA, VA and USDA loans (each with their own borrower criteria).

Solidify your finances

You’re now ready to solidify your mortgage application, by appearing financially stable and organised. You need to present yourself as a sound investment, so prepare to show the lender their potential return.

Obtain the necessary documents for your application. Lenders need to get a clear view of your financial situation – which means you’ll need to have numerous documents at hand when you apply for a mortgage. So where do you begin? Start with a checklist. Here’s a basic list of what you’ll need:

• Proof of income: This should include your latest pay slips (a 30 day rolling total), last 2-3 years of W-2s or 1099s and evidence of any additional income such as bonuses or alimony payments.
• Bank account statements: Usually a 2-3 month rolling total across all accounts.
• Tax returns: Most lenders will request 2 years of federal tax returns.
• Investment accounts: The most recent statements for retirement, stock and bond accounts.
• Debts: A list including account numbers, monthly payment and balance for all outstanding debts.
• Photo ID: A copy of your government-issued ID such as a driver’s licence or passport helps to protect against identity fraud.

Keep all of these documents organised so they can be produced quickly if required and consider storing digital copies in a secure location for the same reason.

Remain financially stable

How you handle your finances in the months preceding your mortgage application almost ranks equally with your document submissions. Here’s what to consider:

• Don’t incur new debt: Your debt-to-income ratio may be considered when your application is assessed, so incurring new debt could harm your loan chances.
• Stability is key: If possible, resist the urge to change jobs as lenders tend to favour applicants who have a stable, long-term work history.
• Consistent repayments: Ensure you pay all your current debts and bills punctually. Late payments are seen as a risk by lenders.
• Savings fund: It’s important to demonstrate you’ve built up a cash reserve. This shows you’re able to manage your finances and have funds in excess of your down payment and closing costs. Closing costs

Tips to increase chances of approval

Take necessary steps to improve your financial health and you’ll be well on the way to getting that mortgage approval. Focus on credit and debt to give yourself the best chance possible of getting a positive response from your lender.

• Obtain your credit report: Before you apply for a mortgage, request a copy of your credit report from the main credit reference agencies and check for any inaccuracies.
• Pay your bills on time: Your credit report will contain a record of your bill payments, so it’s vital you keep on top of your repayments. Missing a payment, even once, can lower your credit score so consider setting up reminders or setting up standing orders to automate the process.
• Limit credit card balances: Your credit utilisation ratio is calculated by dividing your balance by your credit limit. Aim to keep this below 30%. If possible, clear balances before applying for your mortgage to help elevate your credit score.
• Seek professional help: Organisations like When the Bank Says No can help you through any complicated processes.

Reduce your debt

Record your income and outgoings: Draw up a realistic budget of your income and projected spend to see where you can make savings. Remember, the more you can put aside, the more you’ll have to contribute towards lowering your debt.

Pay more than the minimum repayment amount: Where possible, repay more than the minimum amount each month on your loans and credit cards. Not only does this clear your debt quicker but it also saves you money in interest payments.

Avoid running up other debts: In the months preceding your mortgage application, avoid the temptation to apply for other loans or credit cards. The amount of debt you have compared to your income – known as debt-to-income ratio plays an important role in your mortgage approval, so incurring new debt could negatively affect your chances.

Complete the application

Your final step is to complete the application and submit it. Here’s what to keep in mind:

• Organisation is Key: Ensure all your documents are in order. Missing paperwork now can lead to headaches later.
• Honesty is the Best Policy: Verify that every detail you’ve provided is truthful and up-to-date. Amendments later on could set back the process.
• Response Time Matters: If your lender reaches out with questions, respond promptly. Time is of the essence, and delays can be costly.
• Keep Records: After submitting, keep a copy of everything. You’ll appreciate your thoroughness if you need to reference something later.

Remember, attention to detail is crucial at this stage. A misplaced digit in your account number can send your application back to square one. Focus on the details and complete your application!

Frequently Asked Questions:

What are the best ways to save money on groceries?

There are several effective strategies to save money on groceries:

• Use Coupons and Discounts: Look for coupons in newspapers, online, or on grocery store apps.
• Buy in Bulk: Purchase non-perishable items in bulk to take advantage of lower prices.
• Plan Your Meals: Create a weekly meal plan and grocery list to avoid impulse buys.
• Shop Store Brands: Opt for store-brand products, which are often cheaper but similar in quality to name brands.
• Use Cash-Back Apps: Apps like Ibotta and Rakuten offer cash-back rewards on grocery purchases.

How can I improve my credit score quickly?

Improving your credit score can be achieved through the following steps:

• Pay Bills on Time: Ensure all your bills are paid on or before the due date.
• Reduce Debt: Pay down outstanding balances, especially on credit cards.
• Increase Credit Limit: Request a higher credit limit, but avoid increasing your spending.
• Check for Errors: Regularly check your credit report for inaccuracies and dispute any errors.
• Limit New Credit Applications: Avoid opening new credit accounts frequently, as each application can lower your score.

What are the benefits of using a budgeting app?

Budgeting apps offer several benefits:

• Track Spending: Monitor where your money goes and identify spending patterns.
• Set Financial Goals: Set and track progress towards savings, debt repayment, and investment goals.
• Automate Savings: Automatically transfer a portion of your income into savings.
• Receive Alerts: Get notifications for bill payments, low balances, or unusual spending.
• Access Financial Insights: Gain insights and advice on managing your finances better.

What should I consider when choosing a business credit card?

Answer: When choosing a business credit card, consider the following factors:

• Rewards and Benefits: Look for cards that offer rewards, cashback, or points on business expenses.
• Interest Rates: Compare the APR rates to find a card with a low-interest rate.
• Fees: Be aware of annual fees, foreign transaction fees, and other charges.
• Credit Limit: Ensure the card offers a sufficient credit limit for your business needs.
• Additional Perks: Consider cards that offer perks like travel insurance, purchase protection, and extended warranties.

How can I start investing with a small amount of money?

Answer: You can start investing with a small amount of money through these methods:

• Robo-Advisors: Use robo-advisors like Betterment or Wealthfront to automate investments with low minimums.
• Fractional Shares: Invest in fractional shares of stocks or ETFs through platforms like Robinhood or Public.com.
• Micro-Investing Apps: Apps like Acorns round up your purchases and invest the spare change.
• Employer-Sponsored Plans: Contribute to employer-sponsored retirement plans like a 401(k), even with small contributions.
• Low-Cost Mutual Funds: Invest in low-cost index funds or mutual funds with low minimum investment requirements.