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Tips to Consider When Applying For a Home Mortgage Loan
Owning a home is just about everyone’s dream. The ability to purchase a home can feel like quite the uphill task for a large percentage of Americans. But getting approved for a home mortgage loan is often easier than expected. For you to make a good choice in loans, we’ve put together some helpful tips assist you when refinancing or applying for a first-time loan. Below are just some of the important items for you to familiarize yourself with and consider when applying for a home mortgage loan.
Set aside savings for a down payment
Home mortgage loans usually require a small down payment first. Depending on the type of loan, this could range from 3.5% to 20% of the total cost of the house. You can apply for a home mortgage loan with a small down payment from the FHA (Federal Housing Administration). The catch here is that the monthly payments for a small down payment will be higher than that of a larger down payment, and you’ll likely have a slightly higher interest rate. The higher costs are often attributed to the high risk involved from the lender’s perspective.
Check your credit report
A full credit report (details of your credit history) is usually required by lenders. Therefore, it is prudent to print it out before hand and check if any errors or inaccuracies exist before applying for a home loan. Once a year you can print out and review your credit history report for free from the major credit bureaus: Experian, TransUnion and Equifax. Another reason to review your credit report first is because too many requests for your report by lending institutions within a certain amount of time can lower your credit score.
Good credit score
Whether your allowed to borrow money or not, the types of loans available to you, and the interest rate applied are somewhat determined by your credit score. There are several different methods of calculating a person’s credit score, with each credit bureau using their own system. The FICO Score is most commonly used method by most mortgage lenders. The range is 300-850, with a 640 or better score typically needed for most entry-level, first-time buyer loans.
Keep copies of your paycheck
Loan applications will require you to produce a number of verification documents. One of which is your paycheck, so be sure to keep copies from the previous two months as evidence of your income. You will likely be asked to produce copies of your bank statements or other documents to help you prove your total debt and income.
Debt to income ratio
The debt to income ratio is normally used to calculate how much you can qualify for. It is recommended that your debt doesn’t surpass 28% or 36% (depending on what’s included by the lender) of your total gross income. It is calculated by adding up all your recurring debts (including mortgage payment, homeowners insurance and taxes, etc.) then dividing them by the gross income.
It is advisable to shop around and identify the different types of loan offerings from the many lenders before deciding on the one that suits you best. As you shop around, you should probably start by first seeking advice from other professionals, such as real estate brokers and agents.
Owning a home is a long-term investment and commitment, so the worst thing you can do is get yourself into a predicament with something you don’t fully understand. Be sure to have your mortgage lender thoroughly explain how the loan affects you over time. In the mid-2000s, a lot people got themselves in trouble with an ARM loan that increases over time, as well as interest only and sub-prime loans. The most common traditional loans are conventional and FHA.
* We make every reasonable effort to provide you with the most accurate offer information available; however, it's still important to review the terms and conditions set-forth on each company's website. All information is presented here without warranty of any kind. Click on each of the links above to compare offers further and review additional details.