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Given mortgage rates have fallen to historic lows, it's a pretty good time to apply for a home loan. But what if you go through the motions only to have your application rejected? If you can't seem to get approved for a mortgage, here are a few critical moves to make.
1. Boost your credit
Your credit score is a measure of how trustworthy you are as a borrower. As such, it's a factor lenders always look at when deciding whether you qualify. If you've been denied a mortgage, your credit score might need work. Generally, you'll need a minimum score of 620 to qualify for a home loan, but some lenders may impose tighter restrictions. If your score needs a boost, the single most effective way to increase it is to pay your incoming bills on time. Your payment history is the most important factor that goes into calculating your score, and being timely could really work to your advantage.
2. Pay off some existing debt
A mortgage lender will only give you a home loan if it's confident you'll be able to keep up with your payments. If you already have a lot of debt in your name, your lender might fear you'll fall behind. Plus, having too much debt is a sign you don't have your financial house in order. If you've had a mortgage application rejected, your debt-to-income ratio (DTI) could be too high. Your DTI is the amount you spend on debt each month relative to your income. Paying off some existing debt could bring it down to a more reasonable level. And if you pay off credit card debt, it could also improve your credit score.
3. Secure a steadier job
Maybe you're scraping together an income by doing a series of odd jobs or freelance work. That may be enough to pay the bills, but it may not be enough to convince a lender that you're capable of keeping up with your mortgage payments. If that's the case, finding a steady, stable job could be your ticket to getting an application approved. So dust off your resume and see what's out there. Jobs are more difficult to come by these days due to the general economic crisis the pandemic has spurred, but there are opportunities available.
4. Add to your savings
The more money you have, the more comfortable a lender will be giving you a mortgage. That's because if you lose your job or have your income cut, you'll still have your personal assets to fall back on. Holding off on your home search and taking the time to pad your savings account could help your subsequent mortgage application.
5. Make sure your credit report is accurate
Erroneous information on your credit report could drag your score down and needlessly alarm mortgage lenders. For example, if you're listed as having a delinquent debt that's not actually yours, it could harm your chances of getting a mortgage application approved. It's for this reason that checking your credit reports is so important. Normally, you can request a free copy each year from all three major reporting bureaus -- Experian, Equifax, and TransUnion -- but during the coronavirus pandemic, you're actually entitled to a free copy every week. If you find a mistake on your credit report and get it corrected, you may find that lenders are far more willing to give you a mortgage.
Being denied a mortgage can be upsetting. But rather than wallow in your disappointment, take action. The above moves could put you in a much better position to get approved for a home loan, and one with a competitive rate at that.