How to increase your pre-approval chances

If you plan on buying a home, you’ll probably want to get pre-approved by your mortgage lender before you start placing offers to make sure you can actually get a mortgage.

If you aren’t familiar with the pre-approval process, check out this article.

Perch offers same day pre-approvals, and if you’re curious you can use our mortgage qualifier to estimate how much mortgage you could get pre-approved for.

During your pre-approval, you’ll find out:

-How much of a mortgage you could qualify for
-What your interest rate will be
-Your estimated monthly payments

Now, if you’re worried about your lender giving you the amount of mortgage you need let’s look at some of the ways you can increase your chances of getting that pre-approval.

Maintain a good credit score

If you’ve ever wondered why people always told you to “build your credit”, this is why. Your credit score is used as an indicator of your ability to pay back your debts, and lenders will want your score to be above a certain level to qualify for a mortgage pre-approval. If you don’t know what yours is, you can check your credit score online for free. Most mortgage lenders require a credit score of at least 600, with above 680 offering the best rates. If your score falls below these levels you have a couple of options. First of all you might consider going with an alternative lender (link) which could allow you to get qualified at the downside of a higher interest rate. The other option is to improve your credit score and re-apply for a pre-approval. Your credit score increases when you borrow and pay back your loan on time so things like paying back any outstanding debts (student loans, etc) and regularly paying your credit card and phone bill will all build your credit.

Have a consistent source of income

For most lenders, the most important factor in the decision to lend to someone is their income. Lenders want to have proof that you have a consistent source of income that will more than cover the payments of the mortgage. For most people, their job will be their main source of income, and as long as you’ve been working for more than 3 months and ideally have the T4’s to show it, you should have no problem. On the other hand for people who are self employed, or rely on sources of income other than a typical 9-5, it may be a little more difficult to get a pre-approval. Typically lenders will want to see proof of this income and indication that it is consistent and likely to continue, if you’re self-employed that could mean providing 2 years of tax returns to prove your business is consistent. This means if you don’t file your tax returns for whatever reason it will be a lot harder for you to qualify for a mortgage.

Decrease your debts

Aside from your monthly income, lenders also take into account how much outstanding debt you have. Debts include everything you owe from student loans, to child support, to lines of credit, to owed income taxes. Mortgage lenders typically use a debt to income ratio to determine a client’s pre-approval amount. The Total Debt Servicing (TDS) ratio is the ratio of monthly debt to income and some lenders for example will require that the TDS be 40% or lower. This will factor into the size of the mortgage the lender will pre-approve you for. For example, if your debts plus a $2000 monthly mortgage payment would push your ratio above 40% of your monthly income, they would deny your application, while a $1000 monthly mortgage payment would be approved. What this means is the less debt you have the bigger the mortgage you can get pre-approved for. If you’re worried about getting pre-approved on the amount of mortgage you need, paying down outstanding debts would be a good move.

At Perch we work with you to help you get approved for the mortgage you need, with dedicated mortgage specialists available to help you through the process. Sign up for Perch today and you can be pre-approved in as little as 20 minutes.