Home buying is stressful, and qualifying for a home loan can be daunting. Learn how to make the loan process a bit easier and less unnerving with a few tips to follow before applying for a home loan.
Check Your Credit Report and Score
Good credit is imperative when obtaining a home loan. It shows lenders that you are financially responsible and not a risk to loan money to. Before applying for a mortgage, review your credit report. Look for any errors and possible identity theft. Check with your potential lender to find out what their minimum credit score is to obtain a home loan. Compare that number with your credit score to make sure this alone doesn’t disqualify you. The higher your credit score, the better the chances you will pass loan requirements to obtain a mortgage with a fair interest rate.
Keep Your Debt Down
Substantial amounts of debt make lenders question whether you can afford to make the payments on your home loan. Before trying to qualify for a home mortgage, pay down your debt as much as possible and avoid accruing any new debt. Your debt-to-income ratio, including your new mortgage payment, should be 36 percent or less than your gross monthly income for your best chances to qualify and get a good interest rate.
Stash Away Your Cash
Most home loans will require a down payment – anywhere from 3 to 20 percent – so make sure you have that cash in the bank before filling out your loan application. The minimum down payment will vary among lenders so check with your potential loan advisor for down payment requirements. Remember, the higher your down payment the less you must finance so aim high regardless of what the lender’s requirements may be. Make sure you also have enough cash for things like closing costs, application fees and appraisals that are also needed when buying a home.
The process of buying a home isn’t always easy, but it doesn’t have to be too difficult either. Knowing where you stand financially and preparing for a new mortgage payment will give you a leg up during the process.