5 Tips to Help You Get a Home Loan.
, by Rob Kaufman
When it comes time to get a home loan, educating yourself is essential. Whether it's knowing what's in your credit files and understanding your current debt or simply being aware of how your current employment can affect the outcome of your loan application. Knowledge is power.
What follows can help you think like a lender and help put you on the path to getting your next mortgage loan approved.
Know what's in your credit file.
This includes knowing your credit score(s) - especially the one used by mortgage lenders. The higher your score, the more likely it is that your mortgage application will be approved and you'll pay less in points and interest than if you had a low credit score.
Know where your credit stands before applying for a loan. If you're not aware that your credit file shows that you have a bad payment history or a high credit utilization, you won't understand why you get rejected for a loan or are requested to pay higher interest rates. The more you know about what's in your credit files and what your scores are, the more prepared you'll be for the lender's decision.
Know what's affordable.
How much will the house that you're considering cost you each month? (You can use this calculator to help figure that out.) Knowing how much you can afford is crucial to paying your mortgage and other bills on time and not going into debt. To play it safe, many people consider purchasing a home that costs no more than 2.5 times they're annual income.
Remember, you'll have to put down 10% - 20% of the home price as down payment. That's a big chunk of cash right there. Plus, if you opt for a 30-year fixed rate mortgage, you'll be paying more towards interest for the first few years of your payments. See what payments are for a 15-year to see if you can afford them while, at the same time, paying more toward the principal. It'll save you money in the long run, but again, the payments need to be affordable.
Stay employed at your current job.
Making any changes to your employment or income status right before or during the mortgage loan process can either delay things or stop them in their tracks. Lenders approve your home loan based on the information that you provided to them in the application - and that includes pay stubs and other income data from which they base their decision. Make changes to any of that and the lender will have to re-evaluate your entire application, see how much you can afford to borrow and decide whether or not you qualify for the loan. So stay where you are, at least until the deal is sealed and you're in your new home.
Get a mortgage pre-approval.
A number of good things can happen with you get pre-approved for a mortgage. First, you'll get a good understanding of how much a bank is willing to lend you. So when you find the home you want and figure out how much it will cost, you'll have a good idea if it's in line with what a bank will loan you. Also, when you get a pre-approval, the current owner of the home will know that you're committed, mean business and already have a bank who is willing to back you.
Pay down your debt.
Here's an important fact: Lenders check your debt-to-income (DTI) ratio before approving you for a loan. In simple form, the DTI ratio is the amount you owe (debt) versus what you earn (income). If you have a lot of credit card or other debt, and therefore a high DTI ratio, you can be either turned down for a loan or offered a much smaller loan - with higher interest rates. Your monthly debts, including your mortgage, should be below 36% of your gross monthly income. Think about your debt-to-income ratio before applying for a loan so you can work on getting it lower and increasing your chances of getting that mortgage.
myFICO forum members with both high and low credit scores know all too well how much their scores can affect their quality of life. Find others who are in the mortgage loan process.