Real Estate Agent in East York - Better Homes And Gardens Real Estate

How to Improve Your Chances of Qualifying for a Home

06 April 2018
Kevin Hartley

Buying a home takes a lot of preparation. All the documents, logistics, and finances could take time to go through, but there are some steps you can take to improve your chances of being approved for the initial loan. Here are the recommended steps to take to improve your chances of qualifying for a home and make the process of home-buying a little faster.

Get Preapproved

It is important to understand how the banking institutions perceive you as a client. Preapproval gives you an ideal of precisely how much you will be able to afford. You want to make sure you don’t look for a home that you will probably not likely be approved for with your current financial scenario. Stay within your financial range and talk to your bank to see what the best option in your situation might be. You can also use real estate calculators to see where you land on the spectrum.

Put More Money Down

Putting more money down is another major step to take in home financing. If you can make a down payment of 20 percent or more, you can further improve your chances of getting approved for the home. A larger down payment indicates you are serious about buying the property. It also lowers the loan-to-value ratio, which also works to your advantage in the eyes of your lender. The seller may also view your offer as more attractive with a higher down payment being on the table. 

Clean Up Your Credit

Cleaning up your credit is another important step to take. You want to make sure you start with a clear picture of your financial scenario. You can pull a credit report from the three major credit bureaus. Be sure to dispute inaccuracies and challenge any outdated items that should not be on the report. You can also make an effort to begin making payments on your accounts on time. Taking additional steps like lowering your debt-to-income ratio is a good way to make headway in your credit score.

Lower Your Debt-to-Income Ratio

Your debt-to-income ratio shows you how much you owe compared to how much income you generate. Your monthly debt is divided by your gross monthly income. The better your debt-to-income ratio, the better your credit appears. The ratio is considered a good indicator of your ability to manage your monthly obligations. Your ideal debt-to-income ratio should be lower than 36 percent. Work on your monthly budget to get to a place where a home seems feasible in your plans.

Assets Improve Credit 

Liquid assets are a measure of a person’s financial stability. Accumulating assets improves your financial standing. You can start from anywhere, choosing from a range of investment options like retirement accounts, RRSP, mutual funds, bonds, and stocks. Even life insurance policies are a good, cost-effective way to start accumulating assets. 

Delay Purchases

If you are planning to buy a home, consider delaying any major purchases before you’ve bought the home. Any major debt taken on can increase your debt-to-income ratio. You could increase chances of getting your application denied if you take on a large, recurring debt too close to the time you begin preparing to purchase a home. Take this time to also stop paying on recurring expenses that aren’t really necessary. You could dump your cable bill, stop monthly classes you might be paying for, or stop paying timeshare or rent on other properties you aren’t using anymore. Feeling lighter in your monthly bills will help to improve credit and get you approved faster.

Getting ready to prepare a home is a major process that involves taking steps to improve credit and save. If a person can meet the down payment requirements but cannot meet the credit requirements, they will have a hard time qualifying for a loan. All these things work together and impact the lender’s perception of your financial situation.

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Kevin Hartley, Broker is a Toronto based real estate Broker with Better Homes & Gardens Real Estate | Signature Service, Brokerage. @Home is his lifestyle blog, an expression of his passion for home keeping though MAKING (Recipes), DOING (DIY), BEING (Health/Wellness) and DWELLING (Home Ownership, Sales & Maintenance).  Content not intended to solicit clients under contract.

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