Truth be told. Owning a home is a beautiful thing. In fact, it’s the one biggest expenses you’re likely to experience in your lifetime. But before you get there, certain financial issues will be standing squarely in your way. The real estate market is competitive just about everywhere, and sellers are expecting buyers to put in competitive offers. In this case, you want to get a mortgage loan to back up your offer. Sadly, that can be a quite frustrating affair.
This post is will highlight some of the ways home buyers use to get mortgage approval. Let’s get right into it.
1. Start with Your Credit Score
This is what lenders start looking at when reviewing mortgage loan applications. Experian and Fico are some of the agencies where you can get a credit report. Ensure there are no errors in the report and start early enough to fix your score if it’s low. Most lenders consider a low credit score something below 700.
However, your mortgage application can be approved by the US Federal Housing Administration (FHA) if you have a score of 580 or below. Though you’ll need to pay a 10 percent down payment. Those with 700 or higher usually pay a 3.5 percent down payment. Government loans are easier to qualify for, but they come with other significant costs.
If you want to improve your credit score, start paying your bills in a timely manner, avoid taking different credits, and pay off your debts.
2. Save For Your Down Payment
Usually, lenders expect you to have a down payment of about 10 percent of the house’s cost. But in this case, you’ll have to get a private mortgage insurance (PMI), which specifically covers the lender for taking the risk to give you the loan. So, should you fail to pay the mortgage, your lender can take the house and sell it to repay the loan.
You can avoid getting a PMI by saving for about 20 percent or over for the down payment. Keep in mind that the PMI only benefits the lender and doing everything possible to avoid it is probably a good thing. You can save for the down payment by getting a second job if possible, asking for an increase in salary, moving to a cheaper house, and cutting down your overall expenses.
Also, when hunting for a home, don’t be tempted to buy a home that is more expensive than you can afford. Some real estate agents can be quite persuasive when it comes to selling you a house.
3. Have a Reasonable Mortgage Budget
As noted before, it’s best to go for a home you can comfortably afford without wrecking your financial life. So, before applying with any lender, first determine your mortgage budget. A good thumb of rule is that your total housing payment shouldn’t be more than 35 percent of your gross income.
Most finance experts usually recommend a home price that is about 25 percent of your gross income. Lenders will review your financial profile and compare it to the cost of the house you want to buy. They can easily turn down your loan application if they feel the cost is way above your pay grade. Go to mortgageloans.co to learn more about mortgage loans.
Bear in mind that your monthly housing payment is subject to variables, such as property taxes, home insurance cost, and interest rates. So, try to come up with something reasonable and attainable.
Get Ready First!
The last thing you want when making your home purchase decisions is getting a mortgage loan rejection. Be sure to start planning early enough, possibly a year or two. Make sure all your finances are in order and have a credit score no lender will reject. Also, take the time to compare interest rates of different lenders.