In 2019 it took the average homebuyer 73 days to close on a property after their first initial visit to the home. As of February 2019, the median home value was $226,400.
In 2018, 5.34 million existing homes were sold. 88% financed their home purchase.
Whether you’re a first-time homebuyer or not, getting a home loan might not be unusual, but it’s still not an easy process. You need access to the right type of home loan information.
Because what you don’t know can hold up the approval process and you might lose the home of your dreams if it takes too long.
We can help make buying a home easier. Keep reading to learn our five favorite tips for getting a home loan.
1. You Need a Good Credit Score to Get a Home Loan
If you really want to know how to get a home loan, start with checking and improving your credit score first. If your score is low, you’re more likely to either be denied or will get an offer for less money with a higher interest rate than those with a good credit score.
Start by checking your credit for any errors. If you find any inaccuracies, immediately dispute them with the three major credit bureaus.
They have 30 days to correct issues.
Improve Your Credit Score
You should also work to improve your credit score as much as possible. If you carry a balance on your credit cards, pay them down so your credit utilization ratio improves.
That’s calculated by your credit limit divided by your card balance and it’s 30% of your FICO score. Try to keep your balances below 20% of your credit card limit.
Make your payments on time. If you tend to forget to pay bills on time, set up auto-pay with all of your creditors.
And while you’re house hunting, resist temptations to apply for or open any new credit accounts until after you have the loan.
2. Know What Your Budget Is
Use a home affordability calculator to find out how what type of home you can afford. This will tell you the maximum amount of a loan you can qualify for and it’s determined by your debt-to-income ratio.
That means your monthly debt payments are divided by your gross monthly income. Most lenders want your debt-to-income ratio to be no higher than 40%.
Stay Within Your Budget
Also, beware that some lenders may decide to lend you more money than you thought you’d qualify for. While that’s generous of them, the lender also didn’t take into account other expenses such as insurance, groceries, daycare.
Make sure you factor in all your expenses and find a home that works with your budget, not the loan amount you receive.
3. Save Up Enough Cash
Quitting your job before you apply for a home loan is generally not a good idea. Not only do you want to continue saving to buy your home, but lenders want to know that you can pay back their loans.
Speaking of cash, you need to start saving it now so you’re approved by a lender. Mortgage lenders used to allow zero-down mortgage loans but most now require a down payment.
The minimum amount for a down payment varies depending on the lender. The median amount is around 3.5%.
Cash Helps You Pay for Other Costs Associated With Moving
However, keep in mind that the more cash you have to put towards a down payment, it lowers your mortgage balance. Also, if your down payment is less than 20% you’ll also be hit with private mortgage insurance (PMI) which also increases your monthly mortgage payment.
You’ll also need cash to help you pay the following:
- Closing costs
- Home appraisals
- Title searches
- Home inspections
- Application fees
Don’t forget you’ll also have to pay to move your belongings and make some home improvements.
4. Familiarize Yourself With Home Loans
Thankfully, you have some choices when it comes to what type of home loan you want to get. The right loan for you depends on your situation.
If you have good credit, you may want to get a conventional mortgage like those found at GSF Mortgage. Those with poor credit, low income, and loan down payments may qualify for a Government home loan program.
Here are a few home loans you can choose from:
The Federal Housing Administration (FHA) mortgage loan is popular with first-time home buyers. You can get approved with a 500 credit score and only 10% down.
The U.S. Department of Agriculture (USDA) has a loan program to help low-income buyers living in rural areas. These loans come with a zero-down payment and offer the lowest mortgage insurance premium for any type of mortgage.
You’ll need a Veterans Affairs (VA certificate of eligibility to qualify for the VA home loan program. If you do qualify, there’s no down payment requirement and no mortgage insurance.
5. Get Pre-Approved
The smartest step you can take is to obtain pre-approval for a mortgage loan before you even begin your house hunting process. You’ll save a lot of time, money, and stress.
You’ll also avoid falling in love with the house of your dreams only to find out you can’t afford it.
The Pre-Approval Process Is Simple
The pre-approval process is pretty simple and straightforward. You can even contact more than one mortgage lender to submit your financial and personal information.
Then you wait until those lenders let you know whether you qualify, how much you can afford, and what your interest rate for the loan is. You can use the pre-approval letter to let sellers know you’re serious and can have funds available as soon as they accept your bid.
Buying a home is a huge undertaking. And there’s a lot of information you need to know in order to make the process affordable and stress-free.
That includes how to get a home loan. That’s where we can help.
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