4 Reasons to Delay Your Mortgage Application

by Maurie Backman | Updated July 19, 2021 - First published on June 6, 2021

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In these situations, waiting to get a mortgage makes a lot of sense.

If you're looking to become a homeowner, you'll probably need a mortgage to make a home purchase possible (unless you magically happen to have a massive pile of cash at your disposal). But the last thing you want to do is apply only to get denied for a home loan. If these situations apply to you, it could pay to delay your mortgage application so you can address them first.

1. Your credit score needs work

You generally need a minimum credit score of 620 to get a mortgage. But some lenders have higher requirements, and the better shape your score is in, the more likely you are to get approved for a home loan. If your credit score isn't as high as you would like, spend some time boosting it before you apply for a mortgage. You can do so by paying all of your bills on time, paying off credit card debt to lower your credit utilization ratio, and correcting errors on your credit report (for example, delinquent debts that you've actually settled).

2. Your debt-to-income ratio is too high

Your debt-to-income ratio (DTI) measures your monthly debts relative to your income. If your DTI is too high, you could be denied a home loan because a lender might think you're already overextended. You can lower your DTI by paying off debts or by raising your income via a side gig. Either move will be good for your finances, on top of helping you get mortgage approval.

3. You just took a pay cut at work

Your lender will want reassurance that you have the ability to pay your mortgage -- and to that end, you'll need an income that can support the loan amount you want to take out. If your pay was recently cut and that reduction is temporary, you may be better off waiting until it's restored to apply for a home loan. Or, you can boost your own pay by taking on a second job.

4. You don't have much saved for a down payment

If you're unable to make a 20% down payment at closing, you may be denied a mortgage. But even if your lender is willing to accept a smaller down payment -- and many will let you put down 5% to 10% -- you'll be hit with private mortgage insurance (PMI). This is a costly premium that makes owning your home more expensive. A better bet may be to sit tight, save more, and apply at a later time to avoid PMI.

If you apply for a mortgage when you're not an optimal candidate, you may be denied a loan outright. Or you may get approved for a mortgage but get stuck with a higher interest rate than you'd like. If these factors apply to you, delaying your mortgage application could make sense. That way, you can work on improving your financial picture so that by the time you buy a home, you're better equipped to handle that expense.

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