How to Get Approved for a Home Loan

Home loans have become more difficult since so many foreclosures have occurred in the United States. In 2009, most underwriting was geared toward risk management in an effort to prevent future foreclosures. As a result, almost all mortgage approvals are done through an automated underwriting system (AUS). Most lenders are requiring at least a 640 credit score. To be approved for a home loan, take some proactive steps a few months in advance of applying for one.

Things You'll Need

  • Credit reports and scores
  • 2 years of W-2s
  • 30 days of pay stubs
  • Proof of down payment (2 months of bank statements)

Step 1

Visit to get your free yearly credit report from all three credit reporting agencies (Equifax, TransUnion and Experian). Also request credit scores, though there is a small cost for the scores. If you have recently moved, the system might not recognize your new address. If so, download the form to order reports by mail. When you receive your reports, open and review them.

Step 2

Dispute all errors, duplications and outdated accounts by calling the customer support numbers on the first page of each credit report. Deletion of erroneous accounts will increase credit scores. Look at the amount of credit card debt in relation to the maximum credit line. If it is above 40 percent of the maximum credit line, pay down the credit card accounts. Doing this will increase credit scores. Look at your present mortgage payment history (and all payment history). If there are late payments within the past 12 months on a mortgage, seek mortgage approval when the late payment is at least 12 months old. If you rent a home, be sure to build a good reference by paying on time. If you rent from a relative or an individual (rather than a management company), always pay rent with a check; keep cancelled checks available for the past 24 months to prove good payment history. Find more credit help at

Step 3

Gather together all of your income documents (two years of W-2s), 30 days of paystubs, and banking information showing liquid funds for down payment monies and savings accounts. If there is a 401k savings program through your job, provide a statement showing the balance. Lenders look for two full years of stable employment. Gaps in employment will need to be explained. Self-employed borrowers must show two years of tax returns, and those returns must show a profit sufficient to qualify for the loan. Contact your favorite mortgage lender or broker and make an appointment to get approved for a mortgage.

Step 4

Provide income documents to the mortgage lender, along with credit information with balances and minimum monthly payments. The loan agent will calculate monthly income and compare it to monthly payments. When he pulls your tri-merged (all three credit bureaus combined into one) credit report, he will be able to run your automated underwriting service (AUS), which will determine if you are approved. This system will run conventional lending (Fannie Mae or Freddie Mac) or FHA (Federal Housing Authority), depending on your down payment and debt ratios. The lender will, within minutes, be able to give you an approval based on the information on the application and documents you have provided.

Tips and Warnings

  • You can have debt ratios with FHA (Federal Housing Authority) of 31 percent of your gross monthly income for the new house payment of principal, interest, taxes and insurance, plus mortgage insurance premium, as long as all other monthly payments do not exceed 43 percent of your gross monthly income. FHA requires a 3.5 percent down payment. Conventional lenders (Fannie Mae, Freddie Mac) will require 10 percent in down payment and much tighter debt ratios. Your available down payment funds and debt ratios will determine which type loan is more workable for you. Ask your lender for advice on these options.

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