Preparing in advance can improve your chances of getting approved for a home loan. A lender will put your credit, finances and employment history under a microscope when deciding whether to give you the loan. Start planning for the loan application process a year before you actually get down to the business of looking for a home to buy.
Obtain a copy of your credit report. You are entitled to a free annual copy from each of the three major credit-reporting agencies -- Equifax, Experian and TransUnion. If you’ve had credit problems in the past, it’s to your advantage to clean up your report and improve your credit score before applying for a home loan. Late payments and high credit card debts look bad on your credit profile.
Order your FICO score. You can also get your individual credit score from each of the three credit bureaus. Credit scores aren’t included on credit reports so you will have to pay for each score you order. Knowing your credit scores upfront can give you an idea of what kinds of deals lenders will offer you.
Save up to make a larger down payment. The more money you can put down, the less you have to borrow. Having a down payment of 20 percent or more of the home's sale price can increase your odds of getting a loan. A family member may be able to give you money toward a down payment depending on the loan program for which you apply. Get details from the lender.
Refrain from making any large purchases. Don't buy new furniture on credit and don't take out a new car loan.
Think twice before opening any new lines of credit. Avoid applying for any new credit cards for at least three to six months before applying for a mortgage. Increasing your debt-to-income ratio -- how much of your monthly income you use to pay your bills -- isn’t something that sits well with a lender.
Reduce your total debt-to-income ratio. Lowering the ratio gives you a better chance of getting approved for a home loan. Work on paying down credit card debt first as unsecured debts generally carry the highest interest rates. Make more than the minimum payments; otherwise, a lender may think you’re pinched for cash.
Keep your job for a while. Lenders like to see steady employment. In most cases, a lender will look to see if you’ve been at your current job for at least two years. If you have to change jobs, it helps if you continue working in the same industry. Avoid changing banks if you’re thinking about applying for a home loan. Mortgage lenders often see doing business with the same bank for a period of time as another sign of stability.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.