Buying your first home is a major chapter in your life. You’d think that home loans make it easier, and it does. But you’ll need to do some preparation to ensure that your mortgage application goes through. Banks and lending institutions have standards and requirements that you must meet before getting approval.
Here’s what you need to know about your mortgage application:
1. Check Your Credit Score
Before getting a mortgage loan, you need to make sure that your credit score and other report details are correct. Lending institutions will use your credit report to check if you’re eligible for a mortgage loan. Your credit score will also help them decide on the interest rate they’ll give you.
The down payment will also rely on your credit score. The lower the score, the higher the amount of the down payment. To qualify for a mortgage loan, you need a minimum score of 500 if you’re eyeing to apply for a home loan at the Federal Housing Administration. For a traditional mortgage loan, you’ll need at least 620.
2. Consider Lender Alternatives
What if your credit score isn’t enough to get you a mortgage loan from traditional mortgage lenders? You may want to consider a private mortgage lender with mortgage notes instead.
A mortgage note states the terms between the lender and the borrower, how you’ll repay the loan, and the agreement that the home becomes the collateral. It can be bought and sold in secondary markets. It means that the information is accessible to investors like private mortgage lenders who may look into this complete list of places and platforms where mortgage notes can be purchased. So why consider them at all?
Traditional lenders typically require strict documentation. For example, if you’re self-employed, you can’t provide a W-2 form. There are times that your salary may not be enough according to bank standards. Your credit history may also not be enough for these lenders. However, private mortgage lenders may help you as they’re either an individual or an entity that invests in mortgage notes.
3. Find The Best Deal
Whether you want to secure a mortgage loan from traditional or private borrowers, it’s important to secure a deal that’s reasonable for your budget. Remember that you owe money with interest. You need to be able to afford monthly payments and still have enough for living expenses.
Apart from brokers or lenders, look into loans and rates. Be prepared to fork over a 20% down payment according to the rate offered to you. Ask for a pre-qualification process so you also know how much you can borrow to help you decide on a lender.
4. Work On Debt-To-Income Ratio
If you don’t qualify for enough loan amount after a pre-qualification process, there are still steps to improve your DTI. First, find more ways to earn extra money. You can start a side business that fits your schedule, do better at work to get a promotion, or work extra hours.
If you have outstanding debts, work on repaying them. You can use any of the best debt payoff planners you can download online. Debts can cause mental and emotional turmoil, especially if you have several of them. Help yourself by becoming more organized. You may even want to consider debt consolidation to help you end your debt cycle.
5. Decide On A Mortgage Term
Mortgage loan terms last either 15 or 30 years. If you decide on a 15-year term, it means you have to regularly turn over higher payments but save thousands of dollars on a shorter term. For those who can’t afford it, they typically will agree to 30 years instead.
Choosing a type of mortgage may benefit you as well. Fixed-rate mortgages guarantee that you’ll be paying the same amount throughout the term. If you feel that you need flexible payment terms and believe that rates can still go down, you can choose an adjustable-rate mortgage.
In Conclusion
You can attain a mortgage loan as long as you come prepared. Your credit score and financial status play a huge role in whether you’ll get approved or not. If owning a home for personal use or as an investment property is part of your plan, take the above-mentioned tips, and find more. You’ll be grateful for both the knowledge and the learning experience.
