To get the best mortgage rate, it is important to prepare your credit for the loan application. Cleaning up your credit report and improving your credit score will improve your chances of being approved for a home loan. If your credit is already good, maintaining this credit will be crucial to achieving a low-interest rate.

Learn how best to build up your mortgage debt.

Check Your Credit Reports

When applying for a home loan, the mortgage lender will pay attention to three things: First, that you – and your spouse – have a stable income when you apply jointly; the next consideration will be how much of a down payment you can afford. The last piece is whether you have a strong credit history.

Your credit history lets lenders know what kind of borrowing you have made and whether you have repaid your debt on time. It also tells them if you have had any events such as a foreclosure or bankruptcy.

When you check your credit report, you can see what lenders are seeing. You will find out if anything is harming your credit.

Dispute Inaccurate Information

Carefully check your listed credit history for any errors. Incorrect information can affect your credit rating and lead to your application being rejected.

If you discover inaccurate information, contact the credit bureau. Try to find documents that support your claim; proving the error will help to remove it from your report.

Pay Off Delinquent Accounts

If you have any delinquencies, pay them off. Open delinquencies will appear in your credit report and affect your chances of getting a mortgage. Delinquent accounts include all late accounts, debits, invoices in the collection, or judgments.

Debts that are in debt affect the part of your FICO score that is the largest component of your credit score. Trying to fix these problems is a good idea because lenders can use them in evaluating your mortgage application.

Eliminate Late Payment Through Timely Payments

Late payments can stay in your credit history for seven years, but they are most damaging when they occur for the first time. If you have a late payment recently – or you have just repaid some delinquencies – try to wait at least six months before applying for a mortgage.

This six-month period allows the older delinquency to fall further down and look less harmful. In the meantime, six months of on-time payments can help rebuild your credit rating.

Reduce Your Debt-to-Income Ratio

Your bank’s mortgage provider will question your ability to make your mortgage payments if you have a high debt-to-income ratio. Otherwise known as your debt-to-income ratio, this number compares the money you have to get rid of your debt with the money you have taken in your income.

Lenders want to keep this figure as low as possible. To qualify for a mortgage, your debt-to-income ratio must be below 43%. In other words, you cannot spend more than 43% of your income on debt.

To reduce your debt-to-income ratio, you can increase your income, perhaps by doing a better-paying job. But it might be easier to reduce your debt by repaying all outstanding loans or bills and not borrowing more than you can afford.

Don’t Take On New Debt

Borrowing new debt can make a mortgage lender suspicious of your financial stability – even if your debt-to-income ratio remains low. It is best to stay away from new credit-based transactions until you have secured your mortgage.

This includes applying for credit cards, especially as credit requests affect your credit score, including car loans and personal loans, to be safe.

Once you have taken out your mortgage and closed the house, you may want to explore other new debts.