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How to Become an Attractive Mortgage Borrower to Lenders

By Rosemary Liuzzo Mohamed


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Image credit: “Mortgage Loan Form” by hnnbz / CC 2.0

When deciding to take out a mortgage to buy a home, there are several ways a borrower can increase their chances of mortgage approval prior to submitting their application.

Have you viewed your credit report recently? Taking a look at your report prior to applying for a mortgage is very beneficial for a borrower. The higher your credit score, the greater the likelihood of mortgage approval and the less interest paid. Just ten points can mean the difference of thousands more dollars in interest over the life of the loan. There may be items on your credit report negatively impacting your score which you know nothing about. Review the report and take any necessary steps to improve your credit score prior to applying for your loan.

Reviewing your credit report will also assist a potential borrower in reviewing your credit history. Have you paid your debt on time or, even better, early each month? Do you have any debts currently in collections? Are you making more than the minimum payments on open debt? Have you had any delinquent payments? All of these questions must be addressed and, if necessary, rectified before applying for a mortgage. A lender will look very closely at your credit history prior to making a decision on whether or not to lend.

Do you have enough credit? Most lenders will require three – or at the very least, two – open credit cards, school loans, car loans, etc. which have been active for 12-24 months.

Do not charge more than 30% of your credit card limit and try to pay balances in full each month or at least substantially higher than the minimum payment.

Do not close good credit card accounts. Good accounts will boost your credit score, so keep them active and make large monthly payments.

Do not have any “hard pulls” on your credit prior to applying for a mortgage. A hard pull may include opening up a new credit card or line of credit, or making a large purchase such as furniture or a new car. A lender does not want to see a potential new borrower seeking credit elsewhere when obtaining a new mortgage. This could cause a buyer to be denied mortgage approval.

Get your credit card balances as low as possible prior to mortgage application. Pay off any outstanding car loans or reduce them as much as possible. A low debt-to-income ratio is one of the most important factors that will affect mortgage approval.

Maintaining a steady job and income for several months or years prior to mortgage application is beneficial. A lender wants to make sure a borrower’s income is consistent, so changing jobs right before applying for a mortgage is not a good idea. Furthermore, all money and assets in your bank account must have a paper trail that the lender can easily obtain. The lender will scrutinize your application diligently, so be prepared.

Taking the above steps prior to mortgage application is crucial to ensuring a smooth mortgage finance process and, ultimately, to buying your dream home.

Adam Leitman Bailey, P.C.

NEW YORK REAL ESTATE ATTORNEYS