Applying for the home loan might sound like a herculean task but with the right approach and knowledge of factors that should be considered by the lender, one can greatly enhance their chances of being approved for this loan. The following are the basic steps to enhance your home loan eligibility index.
Check Your Credit Score When a lender is evaluating your creditworthiness, one of the first things they will look at is your credit score. Strive for a score of 740 and above since this places you under the excellent bracket hence increasing the chances of approval. If your score is lower, you should postpone the submission of your application for several months and concentrate on increasing it. Ensure all bills are paid on time, reduce credit card balances and finally dispute any information that Credit Reporting Agencies have posted on your credit report.
Reduce Your Debt-to-Income Ratio Your debt-to-income ratio is a measure of how much of your gross monthly income goes toward paying your monthly debts. Ideally, most lenders consider this figure to be below 36%. To reduce this ratio, consider paying down student loans, credit cards, auto loans, and personal debts prior to applying. Prove that you can handle what you owe before getting a mortgage.
Gather Your Financial Documents Some of the documents that lenders will wish to consider when evaluating your eligibility and the amount you wish to borrow include; statements of your financial position, balance statements, incomes, tax returns amongst others. Bring 2 years of tax returns, 2 months of pay stubs, 2 months of bank statements and any other proof of income.
Save for a Downpayment The down payments range from 3-5% of the purchase price for the property to be bought. However, to get the best mortgage rate and to be exempt from having to pay for private mortgage insurance, you should aim to pay a minimum of 20% of the property’s value. Accumulating cash in any form is important, whether in a normal saving account, a money market account, stocks, bonds or any other form of investment.
Lay the Foundation of Continuous Employment Employment history of last 2-5 years is preferred and it is preferred if employment is steady and continuous. Either being in a gap employment or constantly change jobs can be very disadvantageous when it comes to getting approval. Whenever you can, obtain letters from your employers in a new job to explain gaps or changes in employment.
Reduce Buying Big Things Before Applying Do not make any large purchases that are likely to have a bearing on your debt-to-income ratio in the period leading up to the preapproval stage. Avoid new monthly car payments, credit cards or other financing for the month. Do not purchase appliances, furniture, and other big-ticket items until after closing on the home.
Learn About Other Loans and Schemes Some of the mortgages that are available include the conventional mortgages, Federal Housing Administration (FHA) mortgages, Veterans Affairs (VA) mortgages and the United States Department of Agriculture (USDA) mortgages. Know your qualification for various types of loans to select which one would suit you best. First-time homebuyer programs may include lower down payments or interest rates.
Be Preapproved, Not Just Predesignated Pre-qualification is only an estimate of what you can borrow and is less stringent than pre-approval wherein you have to formally apply and your finances are scrutinized by an underwriter. Undergo preapproval to help you demonstrate to sellers that you are a genuine buyer and also know the maximum credit you are eligible for in the mortgage.
Improve Your Debt-to-Income Ratio If your debt to income ratio is higher than desired, there are a few ways to adjust this number. Before applying, you can reduce your monthly payments by making extra lump sum payments toward installment loans. It is also possible to roll over other existing credit as well such as the auto financing and still be able to enjoy better interest rates.
Boost Your Credit Score Besides ensuring that you make regular payments for bills and working hard to reduce your current credit balances, there are other ways of increasing your credit scores within a short period. Go to another person’s profile (which has a good record of payment) and challenge anything that is pulling your score down or reduce the amount of money you spend on accounts so that your utilization rate decreases.
Spend Less to Save More for a Bigger Down Payment A conventional loan require just 5% down; however, to secure the best mortgage rate you should be willing to put down 10-20% or even more. Savings accumulate in the years or months prior to purchasing going towards the down payment requires planning, budgeting, and saving money wherever possible.
Location and price are two of the most important factors that a restaurant must get right. Consider the amount of money that one can afford to borrow and the monthly mortgage payment, including property taxes, insurance, HOA fees, furnishings, renovation, and maintenance costs. Do not be tempted to overextend your budget in order to got a particular neighbourhood. Choose locations that you can easily commute to or buy houses that need renovation in order to afford an option that you can take a mortgage.
Learn What You Can Afford to Pay for the House The principle for home loans is that homeowners should try to ensure that their monthly payments should not exceed 28% of their gross income. But also, factor in other fixed costs such as auto, credit, and student loan expenses before setting your price range. This can be estimated using online mortgage calculators.
Give Information on Signs of Trouble In case you have had late payments, job changes, Credits score dips, foreclosure or bankruptcy, be ready to manage these triggers in home loan application. Composing letters of one-off occurrences or of what has been done to enhance the financial position. Provide evidence to support such allegations.
Work On Your Loan Application Even the application of loan you make counts when it comes to home loan approval. Make sure to complete all the forms to the best of one’s abilities, prepare all the necessary documents beforehand and ensure that all forms are uniform. Approach every document within the mortgage application with precision before submission.
Choose the Right Lender It is possible to find several mortgage lenders that offer loan preapproval that will help you to compare their rates and fees. But go further to seek a lender who keeps you posted, answers your questions, takes time to explain the home financing process, makes you feel they can be relied on, and assists in choosing the right loan program other than the one that will make him/her most profit.
Be Patient and Persistent The process of getting approved for a home loan is not easy and requires a lot of time and extra work if you have imperfect credit. Staying consistent in increasing your credit score, saving for a down payment, providing documentation and chasing after outstanding issues from the lenders point of view can be fruitful when you at last achieve the approval you have strived for. Please do not lose your hope because getting approval is very much possible for most of the borrowers if only borrowers are willing to get it done with utmost effort and perseverance.
It is always good to follow these 15 pointed steps to help you work towards achieving the approval of a favorable mortgage rate and the amount you want for your dream home. Learn all the aspects on which the lenders focus, do things that are under your control such as paying off your debts or saving more money, and represent your financial position in the best way possible. Your chances of home loan approval may not be guaranteed, but you can maximize your probability with patience and hard work.
