Securing Your First Home Loan
Purchasing one’s first home is one of the most fulfilling experiences in life. But, it can sometimes come across as an overwhelming process in order to secure a home loan approval if one is not aware of the process. The idea is to be ready by knowing what will be expected of you as a borrower and how you can place yourself in the best position to secure a loan. Here is a checklist of what you should do in order to increase your likelihood of passing a mortgage check.
Check Your Credit Score The first thing that one is supposed to do is to review the credit report from the three credit bureaus which include Equifax, experian and trans union. Your credit score is determined by the information from your credit report and creditors will consider it. You should try to get at least 620 but the more the better. The scores above 740 are usually considered as the best rates. If you have mistakes on your report or a low credit score, wait 6-12 months before applying for a loan. Never leave payments outstanding, making regular payments, reducing balances, and correcting mistakes.
Verify Your Income Banks need to see you have enough monthly income to repay the debt. Include W2s for the last two years, recent pay stubs, and tax returns. Extra earnings from overtime, bonuses or from self-employment must also be included. Any large deposits in your bank accounts may require justification. Ensure that your paper work is consistent across all these sources.
Reduce Your Debt Banks and other creditors look into your debt-to-income ratio or DTI, which is how much debt you have each month as compared to how much money you earn. It is recommended that an organization should maintain a DTI of 36 percent or less. Clear off credit cards, car loans, student loans, or any other balances. Other things that should not be done include taking on new credit before applying for a mortgage.
Use The Money To Build Up Equity It is normal for the mortgage to require a down payment of between 3-20 percent of the price of the property being purchased. It is recommended that you set aside between three to six months of your living expenses apart from your down payment money. Lenders would like you to have extra funds after paying closing costs. Mortgage rate terms also depend on the down payment you make, the higher the down payment, the better the mortgage rate terms that you will be able to secure.
Get Preapproved You will have a higher purchasing power if you obtain a preapproval letter from a lender before starting your home search. Preapproval gives a general idea of the loan amount, interest rate and monthly payments that you are eligible for. Explore various options of lending companies. This is beneficial for you since it prevents you from facing the effect of rising interest rates since your rates are already locked in advance. Just be careful to fill the loan application before the preapproval expires though.
Assemble Your Paperwork Having an alphabetized file with all your financial documents is helpful when applying for loans. To apply for a loan you may be asked for pay stubs, W2s and tax returns for the last two years, bank statements for the last three months, balances in investment and retirement accounts, copies of ID, and insurance agents/employer information. The best way to ensure the underwriter approves your application is by leaving a trail of audit for the underwriter to confirm your income and assets.
Pick The Right Property Even if a lender prequalifies you for a particular mortgage amount, it does not necessarily mean that you should borrow that amount. Be reasonable by selecting a property which you have a passion for, but also which will not stretch your financial limits. Property taxes, insurance, HOA fees, moving costs, repairs, and other home expenses need to be factored into the monthly payment.
Ask For Help The only sure way to increase your possibility of being approved as a first time buyer is to engage the real estate agent and the loan officer. Even sophisticated people, it would be wise to seek advice from experts regarding how much one can borrow, what type of mortgage is appropriate and how to structure your offer in order to be most attractive in competitive conditions. It is however important to note that one is never too dumb to ask questions. This is the reason they are supposed to assist the first-time home buyers in the process.
With proper financial management and consultation, you would be in a good position to secure your first home loan. Credit, income, debt, savings, preapproval, paperwork, and budgeting are important factors to consider when obtaining a home loan, as well as choosing the right real estate team. Your hard work will be rewarded at last and the dream of owning a house will come through!
