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As the economy goes through continuous changes, mortgage lenders look at more than your income to determine your creditworthiness. In previous years, it used to be that you needed to have excellent credit, to be approved for a mortgage. More recently, people with bad credit have become attractive consumers to mortgage lenders because it gives them opportunity to charge higher interest rates, fees, and points. Making yourself more attractive to mortgage lenders will give you a better interest rate and make your loan more affordable, including:
1. Pay all of your accounts on time for 12 months consecutively before applying for a mortgage. This will give you "A-Paper" borrowing status, which lenders typically consider just as important as your actual credit score.
2. Do you know what's on your credit report? If there are any negative marks, including late payments, charge-offs and over-the-limit balances, make sure they are correct. If you see errors, you can dispute anything on your report. If the creditor cannot prove it, they will have to remove the notation from your credit report. The less negative notations the better you look to a mortgage lender.
3. Don't apply for credit within six months of applying for a mortgage. Each time you look to obtain credit makes it look like you are willing to get yourself into more debt than you can afford. Try to go six full months without applying for any credit before you apply for a mortgage.
4. Pay your car loan until you only have a year or less remaining of payments (or pay it off completely) before applying for a mortgage. Lenders won't take car loans into consideration if it has a year or less remaining (usually) and this will help you qualify for a mortgage.
5. Do you make enough money? Lenders consider a mortgage to cost you about half of what you earn each month. If you are currently paying out more than 50% of what you owe to your other debts, your mortgage lender is going to figure you aren't making enough money to cover the mortgage payment. Pay down debt to less than 50% of what you owe before applying for a mortgage.
Doing what you can to make yourself more attractive to a mortgage lender is going to give you the lowest possible rates you can qualify for. Not only will this help you get approved for the home you want to buy; but it will keep your payments more affordable. Some lenders offer a mortgage-in-principle or mortgage calculator service, whereby you can work out what you are eligible for prior to looking at properties. Alliance & Leicester are one such company, and they also offer competitive mortgage rates when you apply for the real thing.
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