It's much tougher to get a home loan these days. Lenders now are required to perform more due diligence on mortgage borrowers than in the past. And thanks to the Great Recession, many mortgage shoppers may struggle to pass these stricter tests.
But that doesn't mean you have to give up hope. Following are five expert suggestions to improve the odds of getting a loan at the best mortgage rate.
Make sure your credit is excellent
A mortgage shopper's most important move is to request a credit report and make sure it is accurate, according to Cindy Tessier, manager of mortgage processing and closing for Navy Federal Credit Union in Vienna, Va.
Tessier says lenders look to a borrower's credit score when deciding what interest rate to charge, so maintaining a high score is especially important.
"If there is anything negative on your credit report, you need to call the creditor to correct it or to work out a payment plan," Tessier says. "When you apply for a mortgage loan, be sure to provide documentation of any negative accounts, especially if this is something in dispute."
Once the error is corrected, go back to the credit reporting agency to see if the negative item has been updated.
Financial experts also recommend paying off collections and credit card balances before applying for a loan.
Todd Dal Porto, a national sales executive with Bank of America Home Loans, says, "Keep your debt low and the amount of credit you're using under 20 percent of what's available to you. Always paying your bills on time is one of the best ways to maintain healthy credit."
Be transparent in the loan application
Don't hide flaws such as credit problems, and don't fudge information about income or assets.
"Take your time to carefully fill out the loan application as accurately as possible," Dal Porto says. "Trying to hide credit problems or holding back requested documents can only work against an applicant by delaying the process and possibly even preventing a mortgage approval."
The lender wants to make sure the borrower has the capacity to repay the debt. So applicants should be prepared to disclose all assets and income, Tessier says.
"If you earn overtime pay or a bonus, be ready to provide documentation for extra income," Tessier says. "Make sure you document all your assets, including a 401(k), an IRA, CDs and savings, even if you won't be using those funds for the home purchase."
Make a big down payment
A large down payment can make a big difference in whether your home loan application succeeds.
"The more you can contribute to the down payment, the more attractive you'll be to lenders," says Dal Porto.
Contributions from family members or friends for down payment money are allowed by most loan programs. Lenders typically require such contributions to be accompanied by a gift letter asserting you won't have to repay the money.
Look beyond interest rates
Don't focus solely on getting the lowest rate. Evaluate your overall budget, monthly payments and fees.
"A home loan is not just about getting the best deal -- it's about getting the right mortgage with no surprises so you can be a successful homeowner," Dal Porto says.
"Everyone should calculate their own debt-to-income ratio, look at the full cost of homeownership and determine how much they can comfortably afford to spend each month."
Tessier recommends borrowers do their homework, comparing good faith estimates and making sure they won't have to pay a prepayment penalty if they decide to refinance in the future.
"Don't just focus on the interest rate," Tessier says. "Look at the discount points, origination fees, underwriting fees and document preparation fees when comparing loans. You also need to understand how your loan works, especially if it has an adjustable rate."
Refinancing: Prepare for the appraisal
Planning a refinance? Tessier says it's important to "have a realistic expectation of the value of your home."
"Know your market and consult with a good real estate agent before you apply for a new mortgage," Tessier says.
Dal Porto recommends making sure the home is in good working order prior to the appraisal. Repair leaky faucets and make sure all areas of the home are easily accessible to the appraiser.
"Give the appraiser a written list, including your purchase date and price, the special features of the home, any home improvements or repairs you have made and the age of items such as the roof, flooring, siding and heating and cooling systems," Dal Porto says.