If the seller rejected your offer to purchase a house, you still have options.
Unfortunately, sellers are often hesitant to accept any offer to buy without a mortgage pre-approval attached, no matter how good.
We’ll dig into how to get successfully pre-approved so that you can make a competitive purchase offer that is less likely to get rejected.
What is pre-approval and why is it so important when making a house purchase offer?
A pre-approval letter is exactly what it sounds like — an official document showing that you’re pre-approved for a certain amount from your lender.
This helps tell the seller that you’re serious and financially ready to buy their house. A seller wants to know that you’re not going to change your mind or be forced to back out due to your finances.
River City Mortgage offers an exclusive seal of approval on their pre-approval letters to put their customers’ home purchase offers at the top of the pile and tell sellers that their customers have been endorsed by the lender’s president.
A pre-approval letter is crucial to your home purchase offer because a seller is less likely to consider your offer without one.
If you haven’t gotten pre-approved yet, here are six tips to get approved and make sure that your purchase offer is seriously considered.
1. Build Up Your Credit Score
Building or fixing your credit has to be strategic. Too many lines of credit or not enough credit are both things that lenders will want to see you improve on.
Your credit score provides lenders with an understanding of your creditworthiness and determines how much of a financial risk you might be. They use your credit score and credit report to estimate how reliable of an applicant you are.
One of the critical factors determining your credit score is your credit history — how often you pay your bills on time, whether you pay the total amount owing for each payment period, and whether you missed any payments.
Keeping your credit history stable by consistently paying your debts and holding off until after you close on your house to get more credit is one of the best things you can do for your mortgage pre-approval and application.
You can get free copies of your credit score from each of the three leading credit reporting agencies (CRAs) TransUnion, Equifax, and Experion.
If you notice errors or mistakes, be sure to contact the CRA directly, providing any information that needs updating or correcting.
2. Pay Down Debt
If you always make your monthly payments on time and have never missed a payment, this is great for mortgage pre-approval. However you may run into issues getting pre-approved because of the amount of debt you currently have.
To qualify for a mortgage, lenders look at your debt-to-income (DTI) ratio. In other words, they consider the amount of debt you have in comparison to the money you’re bringing in.
For example, most mortgages have a DTI of 43%, meaning that if you have debt totaling more than 43% (including your mortgage) of your income, you’ll run into trouble .
However, some loans, like the FHA home loan program (a mortgage loan backed by the Federal Housing Administration), will approve mortgages for borrowers with a DTI of up to 50% (including mortgage).
3. Avoid Too Many Recent Inquiries For New Credit
If you apply for multiple new credit cards or loans, you could see a drop in your credit score even if you decided not to take the card or loan in the end.
When you apply for a new credit card or a loan, the potential lender runs a hard credit check, and their request to look at your credit information is noted on your credit file.
While a single inquiry might not have a significant impact on your overall credit score, if you have multiple hard checks over a short period, it could result in a lower credit score.
These hard credit inquiries can remain on your credit file for up to two years and certainly be a topic of interest to lenders in your pre-approval process.
4. Meet Requirements After Foreclosure Or Bankruptcy
Getting a mortgage following a foreclosure or bankruptcy can be challenging, and it could be the reason a mortgage pre-approval gets denied.
If you had a previous mortgage and were unable to make the payments, causing the bank or mortgage broker to sell the property to recoup their money, that sends a message you might be a risky case to the lender.
If you default on debts you have incurred, it can also negatively impact your credit rating. But you can still take steps to improve your creditworthiness.
Following a foreclosure or discharge from a bankruptcy, you can begin reestablishing your credit through select, controlled debts such as secured credit cards or loans.
Both foreclosures and bankruptcies stay on your credit report for up to 10 years. You may be able to qualify for a mortgage after 2 to 3 years if all of your payments since then have been paid on time.
5. Avoid a Sudden Job Change
If you’ve changed jobs recently, it can negatively impact your mortgage application. This is because new hires are often viewed as a greater risk when it comes to mortgage approval. Lenders want to see that you have sustainable income.
However, if you have been at your job for at least two years or made a move to a new, better job in a similar field, your lender will likely look more favorably on your employment status.
Sometimes employment changes can’t be helped, but if they can, you might consider waiting until after you close on a home to start thinking about a new job.
6. Make Sure you Have Sufficient Income
Just like how much debt you have, the amount of money you earn is tied to your debt-to-income ratio. This is also why you want to make sure that your job and income is stable during your pre-approval and homebuying process.
Lenders look at how much money you can reasonably afford to pay out for a mortgage each month when considering your mortgage pre-approval. If you have considerable debt but a low income, you may find it challenging to get pre-approved.
However, specific loan programs, like the FHA home loan, do not have minimum income requirements. River City Mortgage is an FHA-backed lender.
If your mortgage pre-approval was denied, it could result in sellers rejecting your purchase offer. But with so many different mortgage programs available such as VA home loans or loans geared toward first-time homebuyers, you may still be eligible for a mortgage.
If you have questions about a mortgage pre-approval and how it can help you make a competitive house purchase offer, reach out to the licensed mortgage specialists at River City Mortgage today.
We will go over all the information with you and help you find the best mortgage product to fit your finances and your family.
Photo by Romain Dancre on Unsplash
