In these situations, it makes sense to wait for a mortgage.
If you want to become a homeowner, you probably need one mortgage to make a home purchase possible (unless you magically have a huge pile of cash to hand). But the last thing you want to do is just apply to get rejected for a home loan. If these situations apply to you, it may be worth deferring your mortgage application so that you can deal with it first.
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1. Your credit score needs to be edited
You usually need a minimum credit score of 620 to get a mortgage. But some lenders have higher requirements, and the better your score, the more likely you will be approved for a home loan. If your credit score isn’t as high as you would like it to be, spend some time improving it before you apply for a mortgage. You can do this by paying all of your bills on time and paying off your credit card debt Credit utilization rateand correcting mistakes in your credit report (e.g., overdue debts that you have actually paid).
2. Your debt-to-income ratio is too high
Your Debt-Income Ratio (DTI) measures your monthly debt in relation to your income. If your DTI is too high, You could be denied a home loan because a lender may think you are already over-indebted. You can lower your DTI by paying off debts or by doing a part-time job to increase your income. Every move is good for your finances and helps you get mortgage approval.
3. You just took a cut at work
Your lender will want to reassure themselves that you will be able to pay your mortgage – and to do this you will need an income that can cover the amount of loan you wish to take out. If your salary has recently been cut and the cut is temporary, it may be better to wait until it is restored before applying for a home loan. Or you can increase your own salary by doing one Second job.
4. You haven’t saved a lot for a down payment
If you are unable to pay a 20% down payment on completion, you may be denied a mortgage. But even if your lender is willing to accept a smaller down payment – and many become let yourself be lowered 5% to 10% – you will be hit with private mortgage insurance (PMI). This is an expensive premium that makes home ownership more expensive. A better bet might be to sit tight, save more, and apply at a later date to avoid PMI.
If you apply for a mortgage when you are not an optimal candidate, you may be denied a loan outright. Or you get a mortgage approved but get stuck with a higher interest rate than you would like. If these factors apply to you, delaying your mortgage application may make sense. That way, you can work on improving your financial condition so that when you buy a home you are better equipped to deal with those costs.