Applying for a Home Loan – A Step by Step Procedure
A house is one of the most significant purchases one makes in a lifetime. However, the procedure of home loan application may appear a little cumbersome if one is applying for it for the first time. This all-inclusive article will help you understand each of the stages of getting a home loan enrolled from the ground up.
Determine Your Budget The first is to define your budget. Take your total gross monthly household income and then subtract out any other liabilities and expenses to determine your maximum home loan capacity. In general, you should never spend more than 36 percent of your gross monthly income on paying your debts. The purchase price range and required loan amount can also be estimated with the use of online mortgage calculators.
Top 8 Best Ways to Save for a Down Payment Typically, the majority of the run-of-the-mill home loans call for the buyer to pay between 3-5 percent of the price of the house. There are programs of low down payment, however, making a larger down payment will result to better loan terms. The first and foremost thing that you should work on financially is to increase your savings for a good down payment. Ideally, the owner should be able to save 20 percent of the cost of the home.
Check Your Credit Having a good credit is very important if one has to secure a good mortgage rate out there in the market. It is recommended that you check your credit reports from the three credit reporting agencies at least six months before you begin the application process for a home loan. If there are any mistakes or if things are not done correctly, have them corrected as soon as possible. Avoid incurring more debts or using credit cards to make purchases and also clear all the credit card balances. Aim at having a low balance to credit limit ratio together with a good payment history to increase the credit score.
Get Preapproved Compare the rates and lenders and go for mortgage preapproval. The preapproval letter will state quantitatively how much home you can purchase, considering your debt, income, assets, credit ratings. It also demonstrates to home sellers that you are willing and able to buy homes and finance them appropriately. The preapproval amount is the maximum amount that you can spend on purchases.
How to Choose the Right Home Loan Study about the various home loan options available in the market such as conventional, FHA, VA, and USDA home loan. Every Mortgage Program has its conditions, interest rates, maturity period and the down payment policy. An experienced loan officer should be able to help a borrower steer them in the right direction to the loan product that will prove more favourable for him/her given his/her financial status and needs with regards to home buying.
Gather Required Documents Your lender will request both financial and identification documents to underwrite your home loan application including:Your lender will request both financial and identification documents to underwrite your home loan application including:
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Copies of tax returns for the last two years
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Pay stubs and W-2s for the last fiscal year
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Bank statements
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Credit and credit information
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Driver’s license
- Proof of legal status Ensure to have these documents on hand even before initiating the process of the application to help shorten the amount of time taken.
Complete a Loan Application Your loan officer will make you complete a formal home loan application with rudimentary or primary personal, financial and employment information. Redo the calculation to make sure it is correct and declare all sources of income without any omission. Accuracy is imperative as even one digit difference can lead to the denial of a loan. It is also important to supply any clarification or additional materials that the lender may request during the underwriting process.
Get an Appraisal Done The lender will get an official appraisal to ensure that the home is worth at least the offer price you bid. This includes physical condition of the property, renovations, similar sales in the area, and prevailing trends in the market. You will also have to arrange for an inspection, title search, and insurance quote.
Fix an Interest Rate Towards the end of the application process your loan officer may suggest that you lock in an interest rate. As a result, it shields you from fluctuations in interest rates from the time you applied for the loan to the time of closing. It is also important to note that rate-lock attracts a fee and this depends on the particular lender in question. Locking in helps define your out of pocket monthly home mortgage payment.
Close the Loan When loan underwriting is cleared, you are in the home stretch. The lender will agree with you on when you should sign the remaining loan papers and that is the date of closing. This is the time when you actually own the house legally since all the payment have been made and the deed is written in your name.
Purchasing a house is one of the biggest achievements in the life of an individual in most societies. By following these outlined steps, one will be well equipped to handle what at first glance may seem like a complex process to finally acquire the keys to one’s first home. Having a lot of things organized and performing many actions from the very start will help you get the right mortgage as to the interest rate possible.
