Buying a home can be a daunting thought as it is one of the biggest commitments someone can make in their lifetime. Some homebuyers get so overwhelmed that they will settle with the first house they come across or give up in the process and continue renting. Fortunately enough, there are many ways to successfully begin the process of home loan approval without getting too overwhelmed.
Here are four important tips that prospective homebuyers should follow to get approved for their new home loan:
Check your credit score
A first-time buyer should have a solid credit score and history to get approved for a home loan. If your credit score is less than perfect, you may want to consider working on it before you apply for a home loan. Aiming for a 660 credit score or higher is usually a good ball park to go off of. It’s a fact that buyers with higher credit scores have a better chance of getting approved with a lower interest rate vs. the “average joe” credit score. You can receive one free copy of your credit report each year from each of the three major credit reporting agencies, including Equifax, Experian and TransUnion.
Pay off your debt
Your current financial situation will be taken into account when applying for a home loan. If you have a good amount of outstanding debt, it may be smart to cut that debt down before applying for anything. The lender is going to want to look at your car loans, student loans, personal loans and credit card debt. Your payment history and line of credit will also be taken into account, as well as any recent credit inquiries. As a borrower, you should avoid applying for any other kind of loan while in the process of applying for your home loan. Keep your debt as low as possible.
Have as much income as possible
A steady income is one of the most important factors of being approved for a loan. A borrower should have as much income as possible to better the chances of receiving the funding. If you’re looking to buy a house with a partner, you will be able to combine both incomes together, which can help you during the approval process. Other forms of income can include disability as well as retirement. Talk with your mortgage lender if you have any questions concerning what is and isn’t income. Although income is an important component to getting a home loan approval, what’s even more important is your income proportion to the cost of the home, in proportion to your debt. It’s kind of like a packaged deal.
4. Maintain a steady employment history
Lenders want their borrowers to not only have a steady income but also a steady employment history. This can be hard for self-employed workers but doable as long as you have proof of tax returns. The general rule is about two years of steady employment, but is different for each mortgage lender.
Bottom line is that consulting with your mortgage lender beforehand can save you a lot of headache during the home loan process. Consider sitting down with your agent and going over the steps of a pre-approval home loan. Working through the motions of this process can help you to understand what kind of home you can afford which will help you get on your way to house hunting.
Remember, if you’re not approved for a home loan, don’t get discouraged. Instead, let it be motivation to get your credit score up and work on saving for a higher down payment.