Get Approved for a Mortgage Loan: Tips to Keep in Mind

There are a lot of reasons why people fail to qualify for the mortgage program that they have applied for. What most people do not understand is that there are certain things that one can do to minimize the chances of this happening. Here are some of the most effective tips that you have to keep in mind in order to ensure that you will get approved for a mortgage loan. Go through the following points and see to it that you use these bits of knowledge when you put your loan application forward.

One of the most important things that you have to keep in mind in order to boost your chances to get approved for a mortgage loan is to clean up whatever credit debt you may have. As you would know, the amount of debt that you have has a great role in your chances of getting your mortgage loan application approved. The bigger debt that you have, the smaller chance you get of getting the amount that you need from your mortgage loan. So is you have the time, you better see to it that you pay off these debts first before you put your mortgage loan application forward.

Another thing that you can do to boost the possibility of you getting a yes is to improve your debt to income ratio. Obviously, the amount of money that you make should be loads bigger than the amount of money that you owe to anybody. There are two main things that you can do to improve this ratio: to increase your income or to minimize your debt. Choose which option will be more attainable for you and make sure that you implement an appropriate plan before you apply for a mortgage loan.

If you cannot pay off all your dues in one go, then the very least that you can do is to ensure that you meet your payment deadlines. It will be much easier for you to get approved for a mortgage loan if you have consistently met your deadlines and if you show good payment history. However, this tip will not be too easy to carry out for you would have to show a certain level of consistency. Worry not, for as long as you show even the slightest inkling of sticking to the terms of your other debts, you will surely be able to increase the possibility that you will get your mortgage application approved.

Apply or Get Approved for a Credit Card Online

A credit card by definition is issued by an issuer, whether a retailer, a bank or a store (usually tied to a financial institution) is a card issued allowing the holder to use it to purchase goods and services on credit.  A credit card usually has a limit and should be paid for a particular time period.  If something is purchased by a credit card does not get paid in a cycle, the card issuer will charge interest. 

Most credit cards provide perks that a lot of their holders do not really utilize.  For example, items brought by a credit card could have extended warranty or theft protection.  Other cards also provide travel insurance for plane tickets bought with the card.  Moreover, there are also credit cards that are tied up with car rental companies that provide car insurance in case the card is used for renting a car.

The first thing to do when one has to apply for a credit card is to shop around and look for the various credit card plans available in the market.  Different credit card issuing companies have various terms and rates.  Some companies also have promotions like annual fees waived for a particular time period. 

The applicant should be fully aware of the various policies of the credit card lines they are looking into, such as cash advances, penalties, balance transfers, penalties, and so on.  This information has been made available in a number of ways, not just in the office of the card company.  Newspapers, personal finance publications and the Internet are filled with important information about these credit card options. 

With the credit card option chosen, the applicant will of course, have to fill out the paper application.  For those who would rather do things on the Internet, online applications are available.  For those who want to apply for a credit card in a manual manner should make sure that the documents he or she is filling out are endorsed by the company and are originals, not photocopies.  Moreover, there are also applications that are done through the phone, as some credit card companies have toll-free numbers.  The instructions voiced by an automated machine are pretty simply and easy to follow. 

Alas, an applicant can apply for multiple credit cards at one time, and waiting for approval can be as fast as two weeks to as long as a month.  Most credit card issuers have facilities that allow applicants to check on the status of their applications.

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Before You Rent Look at Your Debt to Income Ratio

If you’re looking at renting an apartment because you “know” you can’t afford a home or a condo then think again! Right now buying a home is very difficult because of the process you need to go through proving that you have the income you say you have. Other than that it’s not too difficult.

The reason I want you to at least LOOK into buying a home first is because of the amount of foreclosures out there right now. They’re listed on the standard MLS just like every other home available for sale so they’re just as easy to find as any other home. The first thing you need to do is check you debt to income ratio.

Everyone avoids looking at their borrowing power and debt to income ratio because they sound like a 10 page math problem. Here’s the plain and simple version for you: If you get approved to rent an apartment for $900 per month then you can afford at least $900 for mortgage, taxes and condo fee when buying a home.

You can easily find a condo with $150 taxes and $100 condo fee per month leaving you with $650 to spend on a monthly mortgage payment. Use the mortgage calculator at the bottom of this page to see that you can afford a condo for $120,000 ($644 per month). However you’ll need to come up with anywhere between 3-5% for a down payment in order to buy the home plus closing costs.

I’ll assume you don’t have anything saved for the down payment and closing costs. You’ll have to get a personal loan for that amount and use it as the down payment.

Monthly Spending: $900

Monthly Taxes – $150
Condo Fee – $100
$100,000 – $500
Personal Loan $7,000 – $150

Total – $900

So you’ll first get the personal loan over 5 years at about 13% interest. Don’t worry about the high interest rate because the loan is only over 5 years which will be a total of $2,550 in interest for the entire term. That’s worth buying a home.

The second thing you want to do is find a lender with the lowest interest rate possible. Call at least 5 lenders and let each one know the lowest rate you already found and they might negociate it with you. The best current interest rate I know of in July of 2011 is 4.50%. So if you get a $100,000 home and have a 5% down payment of $5,000 you’ll have a loan over 30 years at 4.50% of $95,000. That equals a monthly mortgage payment of $480.

While you’re looking for a home you just need to be sure that the condo fee and monthly taxes add up to less than $250 together. If you find a home with taxes of $1,200 per year and a condo fee of $150 per month it’s still less than $250. The numbers don’t have to each be exactly as I stated in the above equation they just need to add up to less than $900 all together.

If you can afford $900 for monthly rent based on your income and credit score why wouldn’t the mortgage lender allow you to buy a home that only costs $900 per month? It’s the same equation for an apartment renter and a mortgage lender to figure out what you can afford per month and whether they’ll approve you or not.

The main reason I’m pushing people to look at buying a home rather than renting is because home values have dropped like a rock and rental prices have stayed the same! About 2 years ago it would cost about $1,500 per month to buy a home and pay the taxes and condo fees and you could rent it out for about $1,200 per month. The hope would be to make some extra money for a few years and sell the home for a big profit.

Now, in 2011, you can buy a home for $600-800 per month and rent it out the next day for $1,000 per month. Then you can make money each month and sell it in a few years for HUGE profits. So when you hear people saying “buying is cheaper than renting” that’s what they’re talking about. Investors are buying homes and renting them out right away to make additional monthly income.

If you’d rather rent so that you can move in a year or two then you should still buy a condo and rent it out when you plan on leaving. Then you can buy another condo once you have it rented out. Once you have it rented for about 6 months you can use that rent as you personal income which means this:

Your Monthly Spending $900
Plus Monthly Rent $1,000 (75% counts as income) $750

Mortgage Payment $480
Monthly Taxes and condo fee $250

Total Spending – $920

Back to square one and buying your second condo! Mortgage lenders assume that your condo will only be rented for about 75% of the time so they only allow you to use that percent as income. If a tenant leaves it will take a couple of months to get a new tenant in there and paying rent.

Knowledge Will Save You Thousands
The Free Mortgage Calculator

Debt to Income Ratio and How to Lower it

There are two types of debt to income ratios, yours and the banks. You know what you can afford each month so don’t go over that amount. Why would you? Are you really going to get that extra job, or work those extra hours to cover the balance? Probably not..

So the banks try to get every detail of your income and your bills in order to be sure you won’t be a “bad sale” for them. Don’t forget the banks are in business to loan money and WANT to give you a loan. Don’t assume they’re against you just because you aren’t getting approved for the loan that you know is over your budget anyways.

That being said, the banks usually allow you to borrow 40% of your gross income minus any other loans you may have. So if you make $50,000 per year ($4,166/mo) then you can afford 40% of that number which is $1,666 per month. Then minus your car loans, student loans and other mortgages or personal loans you might have. Also subtract the minimum payment on each of your credit cards.

After that you end up with $1,100 to spend on your mortgage. Not quite. Be sure to add in the new monthly taxes and condo fee if you’re looking at a condo.

Mortgage – $700
Taxes – $300
Car Loan – $250
Student Loan – $150

40% of Gross Income – $1,666   -   SUCCESS!

As long as your credit score is in line you should get approved for that mortgage payment.

Ways to increase your debt to income ratio are rather obvious. Get rid of your car loan and you’ll have an additional $250 per month to spend. You could wait an extra few months and put additional money to your car loan to pay it off before trying to get approved.

If that’s not in the near future there are more tricky approaches. Assume you’ve paid 2 years down on your $20,000 car with a payment of $377/mo. That means you’ve paid down about $8,000 if it’s at 5% over 5 years. Now, refinance your $12,000 balance over another 5 years (or even 6 years if the bank allows it) to get a new payment of $225/mo. That gives you an extra $150 per month to afford a bigger monthly mortgage payment. That’s about $30,000 of home over a 30 year mortgage! SO if you were looking at a $200,000 home, now you can start looking at a $230,000 home!

People always start the home buying process by saying “We can afford a $150,000 home”. Well that number can swing up or down quite a bit based on the interest rate you negotiate, the amount of taxes on that particular home and whether or not there’s a condo fee that needs to be included.

Remember every $150 per month you eliminate you receive another $30,000 worth of home to buy!

Finagle with your own bills and see if you can think of a way to lower your bills or increase your income per month to afford a bit more of home for you or you and your family. Please email me or comment on this blog with questions or comments about your mortgage.

Don’t forget to use my mortgage calculator! It will make you smarter just by playing with it, I guarantee it!

If You Think You Can’t Afford it; Chances Are You Can’t

The prospect of home ownership requires some serious financial soul searching. Before you even go shopping, you have to first figure out what you can afford. Maybe you’ve done this already and the prospects don’t look good. You know better than anyone and if you think you can’t afford it, chances are you can’t. The good news here is that there are some simple online tools that can help you make that decision. The tools are calculators that can determine your debt to income ratio, how much you can borrow and how much your mortgage will be and the term.

          First find a debt to income calculator, it’s the percentage of your gross monthly income that goes toward paying your debts. Input how much you make monthly and who you’re indebted to and for how much. Be sure to include all of your obligations such as mortgage payments, insurance and taxes, car payments-including taxes and insurance, credit card payments, student loans, alimony or child support. The lower percentage the better, it shows that you’ve been a good steward of your money and may qualify you for a better rate. A borrowing power calculator can determine how much you qualify to borrow based on your total income versus your debt obligations. You can use this in conjunction with a debt-to-income ratio calendar to help set goals and make you look as good as possible to lenders. Finally, you can calculate your mortgage by filling in the principal, interest rate and the term and you get an estimated monthly payment. You can compare interest rates, terms and varying down payments.

          If you’re dreaming about home ownership, online calculators are a great place to begin. You may be pleasantly surprised at what you can afford.