It is becoming increasingly more difficult to get approved for a mortgage loan even with good credit. Mortgage lenders have been tightening standards for approval due to the credit crunch of late…and the end of the crisis is not yet in sight. Here are several tips to help make sure you qualify if you’re in the market to refinance your home mortgage loan in today’s topsy-turvy mortgage market.
What Mortgage Lenders Consider
Mortgages lenders look at a number of factors to not only approve your loan but assign you a mortgage rate. The top aspects lenders look at are your past credit history and the amount of cash you have; however, the single most important factor is your credit worthiness. If your credit score is below 700 right now your only option could be one of the FHA programs. While FHA loans are great the downside for you is that you will be required to purchase Private Mortgage Insurance (PMI). If you’re not familiar with PMI, this insurance protects the lender and the government from losses if you default on the loan.
The amount you’ll pay for PMI premiums depends on your credit history and can add hundreds of dollars to your monthly payment. While this is certainly a downside of Private Mortgage Insurance, if paying the premiums allows you to keep your home it’s certainly worthwhile.
How to Improve Your Credit Rating
To build a strong credit score you can start by paying down the balances of your credit cards so that you have not used more than half of your available credit. Suppose for example that you have a $5,000 limit on your cards…it is best not to exceed $2,500 in available credit. If you have used more than 50% of your available credit shifting the balances to other cards with less than half of the available credit used could improve your credit rating.
Pay More Than The Minimum Payment
Making the minimum payment every month will not help your financial situation. Set your own payment at least 25% higher than what you are due each month. This will not only improve your credit score but help pay down your balances as paying the card minimum will never get you anywhere. Don’t pay off your balances entirely…you want to show that you can use credit responsibly.
You can learn more about qualifying for a better mortgage and improving your credit score by registering for my free video tutorial.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
