4 Tips for Getting Mortgage Loan Approval during a Slow Economy

A slow economy means a slow credit market, which can slow down mortgage loan approval for most average borrowers. Despite the slow market, low-risk borrowers will likely still be able to secure financing. These borrowers have high incomes, high credit and relatively little debt. Even if this does not describe your situation, there are some tips you may try to make yourself a low-risk borrower in the short run.

#1 Save for a Down Payment

A down payment works in two beneficial ways. First, it lowers the size of the total mortgage. For a $300,000 home, a down payment of 20 percent will reduce the mortgage size to $240,000, which is much more manageable for both lenders and borrowers. Second, a high down payment instills confidence in the borrower's ability to manage his or her finances. A borrower who has worked to save tens of thousands of dollars is likely taking the buying process very seriously. This type of person often understands the financial commitment of a mortgage more than an individual who has not saved a down payment. Further, this type of person has shown he or she can put money aside each month to contribute to ownership of a home.

#2 Seek FHA Approval

The Federal Housing Administration can help reduce the risk of your loan even if you are not a particularly low-risk borrower. The FHA offers guarantees on home loans, meaning the federal government will actually promise to buy the loan out of default if you are unable to make payments. This essentially provides a 100 percent guarantee the loan will be repaid. To qualify, you will need to meet minimum credit requirements and minimum application requirements. Most individuals with a solid financial standing, even if they are not particularly low-risk borrowers, will qualify.

#3 Look for Lender-Approved Options

A slow economy presents a lot of opportunities to snag real estate deals. For example, short sale opportunities, home auctions and foreclosure purchases are often available. The previous lender on a property will at times "approve" the sale. This means the lender has promised to extend financing to an average to good credit borrower who steps into the situation. The lender will lose much less with this option than in allowing for a complete foreclosure. You may even find this option on a new home if the builder is in need of immediate sales. Financing can be much easier to achieve when a lender is already facing a default situation that you may help relieve.

#4 Stabilize Income

Your income must be stable to secure a loan in a bad economy. With a large number of defaults and high unemployment, a lender will not want to extend you a loan only to find you without a job several months later. You can stabilize your income by maintaining employment with the same company for at least two years. Gathering tax schedules showing your earnings have been consistent is also helpful. If you do not have a stable income, you may need to apply for a joint mortgage with your spouse or opt for a cosigner with a more stable income in order to get the mortgage.

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