Getting Mortgage Approval: Your 5-Year Plan
If a home purchase isn’t in your immediate future, you may not be thinking about what it takes to get approved for a mortgage. However, if you know you’d like to become a homeowner in the future, the following tips will help you avoid bumps in the road when the time comes.
Address errors in your credit report
This is important even if you’re not planning a home purchase, because credit report errors can seriously jeopardize your chances of getting approved for any type of loan. You can check your credit report for free once per year through the three major credit reporting agencies, but many banks, credit cards and independent services also offer monthly access. Watch for evidence of credit accounts you don’t remember opening, debts you paid off that still show a balance and errors in your name and address.
Limit credit card debt
In this day and age, some debts are simply unavoidable. For instance, millions of Americans carry student loan debt, while millions more are paying automobile loans. Mortgage lenders expect this and won’t typically hold it against a loan applicant. However, you can expect a lender to evaluate your debt-to-income ratio, so it’s important to avoid any extra debts – especially of the high-interest credit card variety. By paying down as much debt as possible, as quickly as possible, you’ll help smooth the way for mortgage approval when you’re ready to take the plunge.
Show a pattern of stability
Many people move around quite a bit, whether for education, work or a simple change of scenery. Since mortgage lenders will be looking for signs of stability that indicate less risk in offering a home loan, you’ll want to think about illustrating your stability in some way. One of the best ways to establish a pattern of stability, even as you move through a series of job and life changes, is to remain loyal to one bank over time. With the availability of so many online banking tools, this is easy to do even when moving to an area without a physical bank branch. Start by working toward keeping a checking or savings account with the same institution for at least five years.
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