We live in an amazing time when almost everyone can get approved for a mortgage. After all, there are so many different home loan options available that most people should be able to find one that’s right for them, right? Well, not really… Despite what you may have been led to believe, even with all these options available, the truth is that many people still can’t get mortgages simply because they don’t follow through with the application process. Here are 10 tips to get you started on the path to getting your own home loan!
1) Know what you can afford
Knowing what you can afford is vital before applying for a mortgage. Start by looking at your income and bills to determine how much you have left over each month, which is known as discretionary income. This amount will vary depending on where you live, but it’s generally between 25% and 50%. The higher your discretionary income, the easier it will be to qualify for a mortgage.
2) Know your credit score
Your credit score is an important factor in your ability to get approved for a mortgage. A low credit score can result in you not being able to qualify for a mortgage, no matter how much money you have saved.
3) Have a down payment saved up
The first thing you should do is save up for a down-payment. In order to qualify for any type of mortgage, you need at least 20% of the purchase price in cash as an initial down payment. The bigger your down-payments, the better! Not only does this demonstrate that you are serious about buying your home, it’s also less risky for lenders because they know that if something happens and they can’t sell your house, they will still be able to get their money back.
4) Show job stability
- Put down 20% of the home’s purchase price
- Have your credit score over 700
- Prove that you can make your monthly payments
- Your total debt cannot exceed 43% of your annual income
- Make sure you have enough for a down payment and closing costs
5) Consider a government-backed loan
If you’ve been looking for a mortgage but have been turned down by one or more banks, you may want to consider applying for a government-backed loan. Government loans can come from either the Federal Housing Administration (FHA) or Veterans Affairs (VA). These two organizations offer 100% financing and are much more lenient when it comes to credit requirements. If you’re an active member of any military organization, then VA loans are your best bet.
6) Have a low debt-to-income ratio
Your debt-to-income ratio is an important part of qualifying for a mortgage. This figure is calculated by dividing your total monthly debt, including your proposed mortgage payment, by your gross monthly income. In general, lenders prefer that this figure be 28% or less.
7) Get pre-approved
Getting pre-approved is one of the most important things you can do before you start shopping for a home. A pre-approval letter from your lender shows that you have been approved for a mortgage and are ready to buy.
8) Understand the mortgage process
The mortgage process can be difficult and confusing, but it doesn’t have to be. It’s important that you take your time and understand the process before jumping in. There are many different types of mortgages available, so make sure you’re prepared for any situation.
9) Shop around
It’s important to shop around for mortgages so you’re not just taking the first offer that comes your way. You should also be on top of your credit score and other financial matters before applying. Other things to consider are what type of home loan you want and how much money you have saved up for a down payment. The more time spent planning, the better chance you have at getting that mortgage.
10) Ask questions
- Are you knowledgeable about the mortgage process?
- What are your short- and long-term goals?
- What is your debt-to-income ratio?
- Is your credit score good or bad?
- Can you afford to make higher monthly payments if interest rates go up?