You’ve made the decision to purchase your dream home. Congrats! Have you considered getting a mortgage?
You may be a bit scared to apply for such a big loan if you have never done it before. You can relax because being prepared will make all the difference.
Knowing how to apply for a home loan is crucial. After your purchase has been accepted, the real countdown starts. Moreover, it can take up to forty-five days to close your mortgage.
Once you’ve started the search for your dream home, it’s the right time to learn how to apply for a home loan. Learn all you need to know to get approved below.
How to Apply for a Home Loan and Have it Approved
A little over a decade ago a housing crisis took place. As a result, lenders implemented more stringent measures to grant home loans.
This means that the mortgage underwriting criteria that banks use to decide whether or not to grant you a loan has been ramped up. Don’t be deterred though if you’re purchasing your first home.
Banks will still grant the mortgage once you’ve proven that you’re financially ready to handle it. Educating yourself on how to apply for a loan is essential.
Knowing the right way to apply for a home loan as well as how to get approved will save you from getting your loan denied.
Knowing Your Credit Score
It only takes a few moments to know your credit score, you can check it online. However, many future home buyers never even think of reviewing their credit score and history before applying for a loan. They simply work with the premise that it’s high enough.
Your credit score and activity will largely impact your loan application and approval. In fact, research shows that quite a number of lenders will deny your loan if your score is below 680. Having missed payments, constant late payments and other bad credit can also deter your loan approval.
Loan requirements change constantly and you might have to make a downpayment. Gone are the days when lenders had a zero-down loan approval.
Downpayment costs will differ and this is based on the lender and the type of loan. While each lender’s criteria for a downpayment differs, you usually need a 3.5 percent downpayment.
Aiming for a higher downpayment has its advantages. Most lenders will require you to make a down payment of 20 percent on a new home.
If you can’t pay they will ask that you apply for Private Mortgage Insurance (PMI). This will up your mortgage rate a bit, so try to pay the 20 percent deposit if possible.
Some of the other expenses you should be ready for are application fees, closing cost, title search, credit report, and home inspection. If you need financial advice consider going to a professional such as Daniel M. Wallach for expert help with financing these costs.
Keeping the job that you have during the home buying process is important. Changes in employment or changes to your income status can seriously delay or completely halt the application process.
Your home loan will be approved based on your application. Any changes in employment will mean that lenders must now reassess your finances to determine whether or not they can still grant you the loan.
In order to qualify for a home loan, it’s not required that you have no debt. However, the lower your debt is, the better your chances. Your debt will impact whether or not you qualify for a loan as well as the amount that you can borrow.
An evaluation of your debt-to-income ratio will be carried out before your home loan’s approval. The fact is that your total monthly payment including your mortgage should not surpass 36 percent of your gross monthly income. That’s something that lenders will look at.
Paying down debt before applying for a loan contributes to lowering your debt-to-income ratio and increases your chances of getting approved. Avoid new debt as well because lenders will reevaluate your credit score before closing the loan. The trick is to eliminate any major purchases before your loan is closed.
Getting pre-approved for a home loan before househunting is the way to go. You will already know what you are able to afford so it prevents getting attached to a house that is over budget.
Getting pre-approved is fairly simple. All you have to do is get in touch with lenders, then submit your personal and financial details. After that, you should wait for a response.
Your pre-approval will include details on the interest rate you’ll pay as well as how much you can afford to pay. You’ll receive a pre-approval letter from the lender, this makes funds available as soon as your offer to purchase has been accepted.
Understanding What You’re Able to Afford
Occasionally, some lenders in their pre-approved letter will indicate that you can afford more than you can.
Carefully consider and calculate your daily and monthly expenses before you let lenders determine how much you can afford to spend on a loan. Being smart from the beginning is the best way to avoid mortgage turmoil in the future.
The Smart Way to Go
Getting a mortgage or home loan is one of the smartest ways to go when purchasing a new home. However, the key is knowing how to apply for a home loan and get approved.
There are some things to consider such as knowing your credit score, house expenses, keeping your job, getting pre-approved and establishing exactly what you can afford based on your budget. These things will help you to easily apply for a loan and get it approved in the shortest possible time.
If you would like to get more expert financial advice before applying for a loan, browse the rest of this site.