With property prices constantly rising, home loans are now more essential than ever. They are one of the most accessible financial tools that individuals have for making their homeownership dreams come true. Securing a home loan, however, requires quite a bit of planning and research. It involves assessing the personal financial situations of the home buyers as well as researching the market for the most favorable loan options and rates.
1) Check the Credit Score
Naturally, when one is applying for a mortgage, their primary focus is to get it approved. And one of the main factors that can decide whether one will qualify for a loan or not is their credit score. The better one’s credit score and credit history, the higher the chance their home loan gets approved. A good score conveys to the lenders that the applicant practices good repayment habits.
Usually, a credit score higher than 740 is considered very good, and one below 580 is seen as bad. So, one of the most important mortgage approval tips to follow is keeping a close eye on the credit score, especially before approaching a lender. If there is a dip in the score, promptly get the credit report to check for any pending loan payments and clear them as soon as possible. For housing loans, the credit score is better kept above 670 for quicker approval.
2) Calculate the Highest Possible Amount for a Down Payment
The upfront payment for a new house is the largest amount one will pay before the monthly installments begin. Usually, for conventional loans, the buyers are expected to pay at least 20% of the total amount as a down payment. So, before applying for a home loan, the buyer needs to calculate the amount of down payment they would be able to make. If they cannot get at least 20% of the total amount, they may have to get private mortgage insurance (PMI). While it will add to the monthly costs, it will help get the mortgage approved.
Also, one should try paying more upfront since that will reduce the total loan amount. It is a simple yet effective down payment advice that can benefit borrowers in the long run.
3) Evaluate the Possible Monthly Payment
Preparing a loan repayment structure is another important tip for buyers before applying for a home loan. After all, the monthly installments for the home loan will be an addition to the various expenses that one will be handling. This includes home insurance, maintenance costs, household expenses, utilities, and more. So, before applying for a mortgage, buyers must calculate what their possible monthly payment would look like and see if it fits comfortably within their budget. One can also use an online mortgage calculator to get an approximate value for monthly installments based on the total amount, interest rate, and term. This will help one choose a repayment term and loan amount that suits their financial situation.
4) Research Different Loan Options
There are multiple loan options available for financing a property purchase that one must know about.
- Conventional loans – These are the popular option, typically offered by private lenders without government backing. They require a higher credit score and (in most cases) at least 20% of a down payment.
- VA loans – These loans are only for eligible veterans and active-duty military members and are issued by the Department of Veterans Affairs. They often do not require the applicant to make any down payments.
- FHA loans – Issued by the FHA (Federal Housing Administration), these mortgages are ideal for buyers with lower credit scores or smaller down payments (around 3.5%).
- USDA loans – These loans are designed for eligible rural homebuyers and also come with favorable terms such as no down payments and no private mortgage insurance.
Knowing about these loans will help one choose the best option for which one is eligible while enjoying the highest level of benefits.
5) Compare Lenders and Interest Rates
Those applying for conventional mortgages with private lenders must do their due diligence before finalizing their loan provider. Thankfully, many reputable lenders today offer competitive rates and terms for home loans. However, to ensure the best deal, it is better to get quotes from various lenders and compare them based on the interest rates. Also, consider factors such as processing fees, loan term flexibility, customer service, and any hidden charges.
6) Gather the Documents
After finalizing a lender, it is better to approach them prepared, with all the documents for the home loan application in place. Lenders typically ask for certain documents to verify the applicant’s identity, income, employment, and financial history. Some standard documents that one must carry include a government-issued ID, income verification documents (like W-2 forms or payslips), income tax returns, bank statements, and a signed copy of the purchase and sale agreement for the property in question. Having these documents ready and organized helps lenders easily verify the given information and speed up the loan approval process.
