Finding a home loan to help you buy your dream house looks difficult and overwhelming if you do not have any idea where to start. Purchasing a home is a one-time affair in most people’s lives and therefore selecting the right home loan is critical. Knowing what lenders seek and preparing effectively before applying for a mortgage makes the process much easier. Here is a step-by-step guide on how to successfully get approved for a home loan:Here is a step-by-step guide on how to successfully get approved for a home loan:
Check Your Credit Score The very first thing that any person planning to go for a mortgage should do is to look at the credit score. This three-digit number provides the lender with information about your creditworthiness and how faithfully you have met your credit obligations in the past. The principle here is that the closer one gets to the perfect credit score, the lower the interest rate on the mortgage. Scores above 740 are categorized as excellent credit, 700-739 scores are good, 660-699 scores are average, 580-659 scores are poor, and below 580 it will be very hard to get approved. If your credit score is below 700 it will be beneficial to build your credit up before applying for preapproval. Reduce credit card balances, ensure all payments are made on time, and report credit errors. After that your credit rating is in the good to excellent territory then your chances will increase and you’ll also end up paying less for the mortgage interest rate in the long run.
Determine Your Budget After you are aware of your credit score, estimate your income and the amount you want to borrow, using a mortgage calculator or by getting a professional assistance. Consider factors such as: • Down payment amount: logically, usually you need at least 5-20% down • Loan type – Conventional, FHA, VA, USDA, etc. Each loan type has its own set of requirements. • Interest rates & fees – interest rate and fee structure vary between multiple lenders • A payment that you can comfortably afford each month – Incorporate the taxes, insurance, homeowner association fees and your loan payment. • Other costs – Working with a lender, title search, title insurance, et al, estimated to be between $200 to $500 for every $10000 borrowed. Run the numbers to determine the best – the mortgage amount, type, rate and terms that suit you given your current and expected income.
Preapproval and Documentation Once you decide on the right loan amount and type, get a preapproval letter from a lender. The lending professional will analyze your credit history, income proofs, credit score, down payment, DTI and others to establish the amount they can lend you comfortably depending on your status. They will let you know if there is anything that needs improvement, which is quite true.
It informs the home sellers and real estate agents that you are a serious intending buyer who has the ability to fulfill on the purchase. Collect all documents that the lender requires to speed up the mortgage application process. These typically include: • A proof of income such as tax returns, W2s and recent pay stubs showing steady income • This is evidenced by bank and investment statements showing your that is cash reserve and down payment money • Fully completed loan application including information about assets, debts/ liabilities, etc.
Shop Mortgage Rates Once you obtain your preapproval letter, you’re ready to begin the process of earnestly browsing homes in your price range. While home shopping also shop for mortgage rates across banks, credit unions, and other online lenders. Among the borrowing costs one should compare the interest rates and the fees for originating the loan and other closing costs. It is wise to discuss with two to three different lenders to get the best deal in home loan. When you are comparison shopping, do not engage in activities that lower your credit score like applying for more credit. The problem is that several hard inquiries within a short period of time are questionable to lenders. As a rule, do not submit any other full loan applications until you have finished rate shopping.
Search for Homes & Place Bid Well, perhaps the search for homes brought you a wonderful house match! When evaluating the property, ensure that the property is fully evaluated and have the home inspected. After determining your preferred home, make an offer on the same and bargain the buying terms with the sellers in consultation with your real estate agent. State any conditions like the sale of the current home, or a closing date that is not set, to allow time for getting a loan or preparing otherwise. After some negotiation and bargaining, probably your initial deal or an adjusted one will be agreed upon!
Final Loan Details Now it is time for the last push in the mortgage marathon, so to speak! Your lender will reanalyze all your financial information and papers and give you a final word on the loan as well as a Good Faith Estimate of the closing costs. Take time to go through each of them and make sure that in case any part is unclear, it is made clear. Give them any other document they may require without any delay to ensure the approval process is smooth. Two business days before closing, you will be provided with a Closing Disclosure which states the details of the loan and the amount to be paid at closing. You will have this amount in the form of cashier check at the closing appointment to sign the final papers of your mortgage and to receive the keys!
Obtaining a home loan is not an easy process and it demands one to prepare, persevere and document himself/herself. However, entering the new home for the first time makes it all worth it in the end. Do the following and consult with real estate and lending professionals where necessary. If you strive and keep on waiting, you can get the house that you and your family require. Good luck in your home search process!
