Being approved for a home loan might sound daunting, but if you know what lenders want and how to go about it, the chances will be on your side. Below is a simple guide on how you can get a mortgage to finance your preferred home.
Check Your Credit Score The first one is determining your credit score. This three-digit number helps lenders understand how faithful you are to repay debts in the past. The higher the score, the higher the chances of meeting the prerequisites for obtaining a lower interest rate. It is advisable to have a credit score more than 740 before seeking preapproval. If your score is lower, it’s important to pay down your balances and contact credit reporting agencies if you think there may be errors on your credit report.
Manage Your Debt Lenders will examine your debt-to-income ratio which means how much of your income you use to pay back your loans. Ideally, the proportion should be below 36 percent. Before applying for credit, this number can be lowered by eliminating credit card balances, auto loans, student loans, and other obligations. This may allow you to have more disposable income and apply it towards paying your mortgage.
Savings For A Down Payment Another challenge that home buying faces is the down payment which ranges from 10% – 20% of the cost price of the house. Develop a strategy for saving money in order to gradually accumulate enough money for down payment. In this case, the more you can put down, the better. Not only will you get more favorable terms, but you will have an immediate stake in the house as soon as you sign for it.
Gather All Financial Documentation During the preapproval process, lenders ask for several financial documents to confirm your income, assets, debts, and credit history. Expect to be asked for the last two years of pay stubs, W-2s and tax returns, as well as bank and investment statements. The more completeness and accuracy here the faster the preapproval process.
Select a Mortgage Program There is a plethora of loan programs in the market - but then, how do you decide? Meet with a loan officer as soon as possible to go over your financial details, requirements, and aspirations. Among the common mortgage loan programs there are conventional loans, FHA, VA, USDA. Even the requirements that you need to meet when qualifying for one, the down payment that you have to make and the merits and demerits of each are well explained by the loan officer.
Get Preapproved Lender approval is one of the most important factors to qualify and gain offers as a buyer in the process. This letter shows that you satisfy credit, income, asset and other standards of a particular loan amount. Offering to buy a property with a seller is much easier when you have the preapproval letter that shows the seller you are ready to proceed with the sale. The Do’s are simple: only look at homes within your budget during your home searching process.
Verify Employment History The standard employment history that lenders prefer is two years in the same industry or career path. It will also be an advantage if you are in the same job and have had steady recent income. If you have recently switched employers or if you have long periods of unemployment in your employment history, be prepared to provide reasons that may alleviate the employer’s concerns.
Limit New Credit Inquiries Every time you apply for new credit, which includes credit card or auto loan, the hard inquiry will pull down your credit score by a few points. This way, the odds of approval increase and to achieve this, reduce new inquiries in the months before applying for a home loan. Avoid making any major purchases that would entail taking large loans right before you close on the home.
Select the Correct Amount of Loan Discuss your loan amount target range with your loan officer and your real estate agent. It will state the maximum loan amount that you qualify for – but this does not mean that you have to borrow that amount. Taking a smaller amount than what is approved will reduce pressure on the monthly repayments and affordability factor to some extent.
Ensure Gift Money Is Documented In most cases, the home buyers rely on cash gifts from parents or any other close family members for the down payment. This is permitted, however, any amount received in the form of gifts should be accompanied by a gift letter. This confirms that it is not necessary to return the money to the willing lender. The gift giver will also have to explain the source of funds that were used to withdraw through bank accounts.
Choose the appropriate property type Government and conventional conforming loan programs have limitations as to the type of property that can be financed. For instance, conventional loans are for single-family residences, townhouses, condos and sometimes small multi-unit buildings. If you need acres or some other form of zoning then you may require a specialty program such as the USDA loans. Caution is needed when selecting a property because sometimes, the mortgage does not meet our expectations entirely.
Schedule An Appraisal Difference As Needed As the prices of homes continue to rise there could be a difference between the amount one pays for a home and the appraisal value of the same home. This means the loan amount is determined by the appraisal, which means you need money upfront to cover the difference. When looking for a house, make sure that you are financially ready to have more than the down payment to fund an appraisal difference if there is one.
Now the guidelines for mortgage qualification where a lot of things need to be done, but the basics are to know what is needed by the lender and to arrange the money. If you have done the right things above at an early stage you will be sure of your eligibility, do your shopping and get the right home financing. Lastly, do not hesitate to consult with other professionals in real estate and lending throughout this process whenever you might need help. When ready, these preparation steps put you in the right position to secure the home loan that turn your ownership dreams into reality.
