In January 2014, new regulations went into effect in the mortgage industry that has made it more difficult for the average consumer to qualify for a conventional mortgage. These regulations were put in place in an effort to prevent a future mortgage crisis like the one experienced in2008 and 2009.
The new standards are a guideline for lenders to use to ensure that the borrower will be able to easily repay the loan. Since its inception, many borrows have found it hard to qualify for loans. However, there are things that all consumers can do to improve their credit score and chances for being approved for a conventional loan.
Improving Your Chances For A Conventional Mortgage
It is recommended that you start preparing for applying for a mortgage at least six months prior to the actual application. This will give you sufficient time to boost your credit score and save for a large down payment on the home.
Check Your Credit Score. You will want to obtain a copy of your credit report from each of the three major reporting agencies. Go over each report very carefully and correct any inaccuracies. Dispute any information that is not correct and try to eliminate any outstanding debts that may be impacting your score.
Do Not Open New Credit. You will want to refrain from opening any new credit line for at least six months prior to applying for a mortgage. New accounts will skew your debt ratio and make it more difficult to qualify for a mortgage. Avoid any large purchases that could impact your credit including purchasing a new car unless it is completely necessary.
Pay Down Debts. Work on eliminating as much of your debt as possible. Bring down high balances on credit cards and try to eliminate any small debts.
Compile Financial Information. You will need to provide a lot of financial information to the lender when you apply. Having everything ready will improve your chances of a quick qualify. Gather bank statements, bill statements, saving information, retirement account information, pay stubs and any other financial info that may make you look like a low-risk client.
Save For Down Payment. The more money you are willing to place down on the home, the larger your chances are for acquiring a conventional loan. Lenders see these down payments as a “willing investment” into the home and believe that consumers who put equity into the home are less likely to default on the mortgage.