As the world’s economy continues to recover from the financial crisis, many people are struggling to buy homes. This has meant a competitive real estate market in many parts of the world, requiring buyers to navigate the challenges of owning a home, including competing with wealthy investors who have the cash to buy homes. Getting approved for a mortgage loan to buy a home is never easy, but you can bypass the odds and own a home. Here are the tips on getting approved for your home loan.
Document your income and debt statuses
One of the first steps of applying for a mortgage is to have all the information about your earnings and debt in place. Here, you will need to provide a proof of income by providing at least two months of pay stubs to the mortgage provider. The process of underwriting can be a little involving for those who are self-employed. You will need to provide your tax returns summaries to help your lender determine your indebtedness. It is advisable to pay off all your loans first and avoid new loans before approaching a lender. You will need to use a home loan calculator to help you estimate the amount of loan that you can afford.
Know your credit health
First, obtain your credit information, including your credit score and a summary of your credit history. It is important to get in advance to allow for correction of errors and negative items, including late payments. You might need to enroll to a credit report service to help you get up to date information about your credit history as you continue to search for a home loan. Many lenders prefer that your FICO credit score be above 700. If your credit score is less than this, you may need to find a highly qualified guarantor or cosigner or wait to get better scores before getting the approval. Higher credit scores attract lower mortgage rates, which can mean thousands of dollars in savings. Avoid applying for a loan a few months to getting your mortgage since this makes lenders suspicious about you.
Know your mortgage budget
Perhaps this should be the first thing to think about even before you talk to your lender. Determine how much home you can afford to pay comfortably before you apply for a loan. The best rule is to ensure that your total payment towards the loan, including other fees and taxes should be less than 35 percent of the gross income. However, it is recommended that you stick to 25 percent of your gross pre-tax income since there are lenders out there who are a little conservative considering that the house payments many vary based on the changing interest rates, property taxes and the cost of insuring the home. Therefore, you will need to consider these items when determining how much of a loan you can afford.
Your down payments
Next, you need to determine how much money you need to save towards your down payment. Today, many lenders are requiring borrowers to have at least ten percent of the total loan. However, people getting an FHA or other special loans may need to pay less than 10 percent. Paying a higher down payment will help you avoid the high cost of private mortgage insurance (PMI) which is intended to cushion the lender in the event of foreclosure before you establish a reasonable equity in the home.
In conclusion, the process of getting approved for a mortgage can be tedious, but you can make it easier by ensuring a favorable credit score, cutting on debts, putting forward a higher down payment and budgeting for your loan.Having a mortgage calculator can help you determine your ability to pay a mortgage loan that you are looking for.