Despite recent declines in housing prices, owning a home is still considered one of the best long term investments a person can take.  Not only will owning a home allow a person to build equity, but it will also lead to significant tax breaks and allow a person to curb against the risk of inflation.  To purchase a home, most people will need to finance the vast majority of the purchase through a residential mortgage.  Due to the high rate of mortgage defaults, many mortgage lenders have drastically tightened their lending standards.  Because of this financing a new home has become more difficult.  Luckily, there are several ways a person can improve their chances of being approved for a mortgage.

The first step that a person can take to improve their chances of being approved for a mortgage is to review their credit and make any possible improvements.  To review your credit, you will need to order both your credit report and score.  Since a mortgage is such a significant investment, purchasing reports and scores from all three bureaus will be worthwhile.  Once you have received the report and score, you should check to see if your score will qualify you for a mortgage.  To even be approved for a mortgage, most lenders will require a score of 680 or higher.  To get the best interest rates, your score will be 740 or higher.

If your score is within 20 or 30 points of those levels, there are a few things you may be able to do to improve your score immediately.  First, if you have outstanding credit card balances, paying those off will improve your score immediately.  Second, paying off or becoming current on any charge off accounts you have could have a drastic immediate impact on your score.  These changes should be reflected on your credit report and score within 30 days.

The second way to improve your chances of being approved for a mortgage is to put forth a larger down payment.  Since recent years have proven that housing prices can decline, banks place far more importance on a sizable down payment than they have in years past.  While a few years ago you could purchase a home with as little as zero down, being approved for a mortgage now requires a down payment of 10% or more.  To avoid paying private mortgage insurance, many mortgage lenders will require a 20% down payment.

Ensuring that you are purchasing an affordable home is the third way to improve your chances of being approved for mortgage financing.  Mortgage lenders use a debt to income ratio to determine your ability to afford the mortgage payment.  This ratio, which is defined as monthly total housing debt divided by monthly gross income, should be 28% or below.  If your projected payments exceed this percentage, you may be charged additional fees or a higher interest rate.  In no event will a bank offer a mortgage if this percentage exceeds 33%.  You can lower your ratio by either purchasing a cheaper home or putting forth a larger down payment.

If you feel you have a strong credit score, sizable down payment, and low debt to income percentage, then you will most likely qualify for many attractive mortgage offers.  To get the best mortgage rate, you should request quotes from multiple lenders.  By doing this, you will have the leverage you need to negotiate with lenders to have both your interest rate and mortgage related fees reduced.

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