There are a few ways to increase your chances for loan approval that will also help you determine what you will be able to afford each month:
Many experts agree that applying for a loan before you find a home and being pre-approved will help you create a budget, buy a home that is in your price range, and help lenders make their decisions faster.
One way to increase your chances for a home loan is to not ask for more than you will qualify for. This means you will have to look at your income level, the amount of debt you have, and the expected monthly mortgage payment. You should also factor in cost of living expenses, because your lender will. Apply for the amount you will need and nothing more.
If you are thinking about buying a home in the next few years, you should prepare by paying off those credit cards and only using them for emergencies. Do not cancel your existing cards since this may actually lower your credit score. By showing you have a zero balance on your credit cards, you will be showing lenders that you know how to use credit wisely and you have been paying your cards off on time.
This includes your electric bill, rent, student loans, and other bills that you may have to pay each month. By creating a track record that can be traced, you will be showing lenders that you are a responsible person who deserves to have a home loan.
How Home Appraisals Can Affect Your Home Loan
Unfortunately, a home appraisal can affect the status of your loan. If the home appraisal comes under the selling price of the home, most lenders will not grant the loan. This can be heartbreaking, but there are a few solutions that may work depending on the rules of the lender. The following options are available:
The Homeowner Reduces The Selling Price
Depending on the appraised value in comparison to the asking price, some homeowners will be willing to lower the price of the home if they need to sell quickly.
You should not count on this happening since many homeowners want to receive the price they are asking for. You may have no choice but to find another home.
A Higher Down Payment
Some lenders will grant you the loan if you agree to pay a larger down payment on the home and assume the financial risk. This is only an option if you can afford to pay a larger down payment. Do not risk your financial security in these cases; it is just not worth it.
Dispute The Appraisal
You can send a letter to your lender disputing the appraisal or have another appraiser determine the value of the home. You will have to pay for this second appraisal, which may or may not yield the same results. There is no guarantee that your lender will accept the second appraisal.
Find Another Lender
This is a last resort move because it will postpone the closing for another month or so and there no guarantee that the lender will accept the appraisal.
Since home appraisals are required by most lenders, you should find out during the loan application process the policies that the lender has when dealing with appraisals. If your lender will not accept a lower selling price, you putting a larger down payment, or other solutions to a low appraisal, you should consider finding another lender just in case there are any problems down the road.
Home appraisals are based on the current value of homes in the neighborhood, homes that are comparable in size, the housing market, and the age of the home. While you can expect to hear different numbers from different appraisers, you will see that these numbers will usually not be too far off.
The only real benefit of a low home appraisal is that it will tell the homeowners to list the home for less money so that they will be able to sell it. In the meantime, you will have to find another home.