Pre-approval of a home loan is another important process that you should not neglect at all while looking for a home. Pre-approval means you already know how much home you can comfortably buy and the sellers are assured they are dealing with a credible buyer. Below is a checklist you can follow if you want to apply for a home loan.
Check Your Credit Score The first thing which majority of the lenders are likely to consider is your credit score. Your credit score thereby gives a lender an indication of how you have been performing as per previous credit transactions. The credit score that is most frequently used is Your FICO score which is usually on a scale of 300 to 850. Specifically, the higher the better when it comes to the credit score. A credit score higher than 720 is considered excellent while a score of 580 and below will see the applicant being rejected. To evaluate the chances of pre-approval, it is recommended to request a free credit report and review it for inaccuracies. Also, clear all the balance to improve the rating of credit if it has been affected, otherwise, pay off the debts.
Verify Your Income Lenders will need to verify your income to satisfy themselves that you earn enough to afford the monthly mortgage payment. You may be asked to bring W-2 tax forms, recent pay stubs, or tax returns to prove that you have income. Ensure that your documentations are well completed and up to date. Depending on the type of income, additional documentation may be needed; for example, if you are self-employed, have rental income, royalties, or dividends.
Reduce Your Debt Besides, the lenders will assess your income, as well as all your expenses and debts to establish the amount that you can afford to pay towards the monthly mortgage. This is because, it is advisable to clear or pay off pre-approval request before using credit cards, which are a form of revolving credit. The closer your debt to income ratio is, the fewer qualifications you have.
Pre-Purchase: Saving for a Down Payment A very basic rule which you should know is that the lenders are very much concerned about your down payment. It is often required that the down payment should range from percent to percent of the price of the home. The more you are willing and able to put down, the better. A large down payment indicates ability to meet mortgage obligations, leads to a better deal on interest rates and does not require the payment of PMI.
Selecting the proper application It is essential to select a mortgage program that fits your unique needs. Some of the aspects to consider are the kind of loan, down payment, the type of interest rate, tenor, and more. Before applying for pre-approval, it is recommended to seek the help of a mortgage professional to determine which loan type is most suitable in your case.
Get Pre-Approved This means you can now apply to get pre-qualified or pre-approved after you have verified income sources, reduced outstanding debt, saved for a sufficient down payment, and researched the programs as well as have corrected any problems on the credit report. The pre-approval means officially that one is capable of obtaining financing and it goes a long way in convincing real estate agents and sellers. Pre-approval works hand in hand with the loan qualification process; most lenders will provide a pre-approval letter that details the amount of money that the borrower is approved to borrow, and therefore the price range of the house a borrower can afford.
Compare Multiple Lenders It is beneficial to apply with more than one lender because this way you can compare available offers. The interest rates, fees, and loan terms seem like small differences, yet they can amount to thousands of dollars saved over the term of the mortgage. Be sure to consider both online and traditional lenders, such as banks or credit unions when you are shopping around for home loans. Secondly, use a mortgage broker because they can get many different loan products which are available.
Lock In Your Rate If the interest rates were fixed with your pre-approval letter, do not take too long to complete the purchase after making an offer on the house. Usually rate locks are for days to days. Keep an eye on market interest rates when searching for a home. If they trend higher than your locked rate, then you stand to benefit because you have already locked in a lower rate.
Work Immediately Once Your Offer is Rejected Once your bid to purchase has been accepted, your lender will automatically order an appraisal of the property to confirm its market price to the requested mortgage amount. On the same note, your lender will complete the validation of your financial documents such as bank statements, tax returns, and employment information. If there is any, it is important to respond immediately to it to ensure that closing is not closed out.
Closing on Your New Home It is recommended that you keep touching your loan officer throughout the completion of the transaction. You should be able to answer any questions that might arise on the way as well as to submit any additional documents as soon as possible. Do not wait to answer lender calls, emails or any form of communication immediately. Hitches in the latter stages of the loan approval process could compromise your interest rate or closing date. Perseverance and timely response will be rewarded with keys to the new home in hand on the agreed time without any nasty tricks at the end!
When you follow these steps to the latter, it will assist you to make the right moves towards getting a home loan. Having good credit, documented income, and sufficient down payment prepares you for the task ahead and increases your chances of success. Understanding the different lenders, knowing the kinds of mortgage out there, moving swiftly once you’re approved, and frequently talking with your preferred lender will help you get the best deal for financing your dream home.
