Getting pre-approved for a mortgage is a critical step in the home-buying process. It not only gives you a clear understanding of your budget but also positions you as a serious buyer to sellers. If you’re looking to improve your chances of pre-approval, follow these expert strategies.
- Review Your Credit Report
Your credit score plays a significant role in the mortgage pre-approval process. Obtain a free credit report and review it for errors or discrepancies. If you find any, dispute them right away. Improving your credit score by paying down debt or correcting mistakes can boost your approval chances significantly.
- Reduce Your Debt-to-Income Ratio (DTI)
Lenders look closely at your debt-to-income ratio, which compares your monthly debt payments to your gross income. To strengthen your application, aim to pay off existing debts and avoid taking on new ones. A lower DTI makes you a more attractive borrower.
- Save for a Larger Down Payment
A larger down payment can improve your pre-approval odds by reducing the lender’s risk. Not only does this show financial discipline, but it can also help you qualify for better terms and avoid default mortgage insurance from Canadian Mortgage Housing Corporation (CMHC).
- Ensure Steady Income and Employment
Lenders favor applicants with a stable employment history and consistent income. If you’re considering a job change, it may be wise to wait until after you’ve secured your mortgage. Consistency is key in assuring lenders that you’ll be able to meet your mortgage payments.
- Limit Major Financial Moves
Avoid making large purchases or applying for new credit before applying for a mortgage. Doing so can increase your debt and lower your credit score, both of which may negatively affect your pre-approval chances.
- Get Pre-Approved with Multiple Lenders
Don’t settle for the first lender you approach. Different lenders have varying criteria, so shopping around can increase your chances of securing a pre-approval. Just make sure all credit inquiries are made within a short period, so they only count as one hit on your credit score.
By taking these proactive steps, you can significantly improve your chances of mortgage pre-approval. A higher credit score, reduced debt, and financial stability are all indicators that you’re a low-risk borrower, which is what lenders are looking for in a mortgage applicant.
