Tips on how to be the perfect loan applicant

The perfect loan applicant
The perfect loan applicant overview

How to be the perfect loan applicant when applying for a home loan

Unless you’ve owned a home, you probably don’t know very much about getting a home loan.  With reports of historically low interest rates and lower home prices, suddenly homeownership sounds like a great idea! But the process of getting a home loan is quite different from getting a car loan or renting an apartment, and not recognizing these important differences can lead to major disappointment when a lender denies your home loan application.

Information is key, and there are a number of ways to avoid this heartache when applying for a home loan. Following are our 5 tips to successfully financing a home with the least amount of stress.

Checklist mortgage application
Fulfilling certain conditions for taking out a mortgage can make banks offer you better opportunities

Monitor Your Credit Score

Credit scores (and credit activity) are very important factors in home loan approval. Many lenders require a minimum credit score of 640 (however some go as low as 580). If your score is too low, lenders can deny your request for a home loan. Regulations change all the time, check with Lucy to see what you could qualify for with your current credit score.

In addition, several missed payments, slow payments and other negative credit information can stop home loan approvals. Focus on paying your bills on time, reducing your debt, and staying on top of your credit report. Cleaning up your credit history beforehand and fixing errors on your credit report will go a long way toward achieving and maintaining a good credit score.

Save Your Money for Down Payment and Closing Costs

Down payment amounts vary depending on your circumstances and which loan program you qualify for. A 20% down payment is common with home loans. 20% down not only reduces your mortgage balance, but it also alleviates private mortgage insurance (or PMI). Lenders attach this extra insurance to properties with less than 20% equity, and paying PMI increases your monthly mortgage payment. Eliminate PMI payments and you can enjoy lower, more affordable mortgage payments.

Bear in mind that down payments aren’t the only money you might need at closing. Getting a mortgage many times also includes closing costs, home inspection fees, home appraisal costs, title search fees, credit report fees, application fees and other expenses. Closing costs can be roughly 3% to 5% of the mortgage balance paid to your lender before you’ve received keys in hand.

Keep Debt Reasonable and Avoid New Debt

It is also very important not to have too much outstanding debt for your income. You don’t need to be debt free to qualify for a home loan. However, if you are maxed out on your credit cards it will affect your credit score negatively. Your debts play a large part in determining your credit score, which plays a large part in determining how strong your loan application is, and how much you will be able to borrow.

As a rule, avoid making any major purchases until after you’ve closed on your mortgage loan. Common examples of this might include financing a new car, buying new appliances with your credit card, or cosigning for someone else’s loan.  Remember, all of these items will affect your credit score.

Know Your Budget

Don’t let lenders dictate how much you should spend.  Lenders determine pre-approval amounts based on your income and credit report, but they have no idea how much you spend on other items such as daycare, insurance, memberships, groceries, and other monthly expenses. Rather than buying a more expensive house because the lender approves you for it, be smart and keep your housing expense within a more comfortable budget.

Be able to document your income

One important item is to show sufficient, regular and demonstrable income. This must be accompanied by job stability, which shows that during the last few years you have not stopped working, sustaining steady income.

Have your ducks (documents) in a row

When you apply for a mortgage you will need to submit certain documents to the lender. They will differ depending on your circumstances and the requirements of the lender. Typically those documents break down into these categories:

– proof of identity (driver’s license, passport, green card)

– proof of employment and income (paystubs, W-2s, tax return…)

– documents from home purchase transaction (signed sales contract, deposit check, proof of homeowners insurance…)

– documents relating to down payment (bank statements, source of large deposits…)

Loan officers on the iLENDi website are available to guide you through the process and explain which documents will be required for the mortgage program that’s the right fit for your circumstances.


If you don’t immediately meet the qualifications for a mortgage loan, don’t get discouraged. Instead, let it motivate you to improve your credit and finances. Many people have risen above credit problems, bankruptcy, foreclosure and repossession, specifically to acquire their first home. Just be sure to map out a realistic plan that works for you in advance and stick to it.

Happy homeowning!

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