With high-interest rates and the cost-of-living crisis eating into your budget, getting a home loan might seem harder than climbing Everest. But do not lose hope – there are some methods to increase your chances! In this article, we will present you with six essential strategies to secure your dream home loan.
Table of Contents
Strengthen Your Credit
When applying for a loan, it’s important to have a strong credit history and score so you can get the best rates and terms. You can still apply to get a loan with a less-than-perfect credit score, but the interest rate will probably be higher. So, how to strengthen your credit?
First things first, pay all your payments on time and reduce your credit card balances. Start right now since your credit report will show your payment history for at least two years. After that, bring any past-due accounts current. Your credit score can take a hit if you have an overdue account. By paying all these accounts in full and on time, you’ll limit some of the damage.
Reviewing your credit reports is the next step – you can do this online. Verify that your credit reports are accurate and, if found inaccurate, get in touch with the reporting bureau immediately. For example, if you find an incorrect address or a paid-off loan that isn’t recorded as such. Check your credit score as well – when you do it, you’ll see a list of the main factors affecting it, and that’s how you’ll know what to change to strengthen your credit.
Compare Mortgage Rates and Loan Types
It’s important to know all the options you have. The main types of mortgages include conventional loans, FHA loans, VA loans, USDA loans, and jumbo loans. Conventional loans are not guaranteed by the federal government in any way or form. To qualify, you must have a credit score of 620 or above and put down a minimum of 3-5 percent.
Borrowers with less perfect credit scores can think about FHA loans, which are insured by the Federal Housing Agency. Requirements are a credit score of 580 or more, a debt-to-income ratio of no more than 43%, and a down payment of 3.5%.
VA loans, guaranteed by the United States Department of Veterans Affairs, are only available for qualifying members of the military. Credit score requirements vary depending on the lender, and there is no down payment requirement.
USDA loans are guaranteed by the United States Department of Agriculture and are available for some properties in rural areas. Credit score requirements vary depending on the lender, and there is no down payment requirement.
Finally, jumbo loans are available for properties with prices that are higher than the federal conforming loan criteria ($766,550 for the biggest part of the country or $1,149,825 in more expansive areas). Jumbo loans come with down payment requirements and higher minimum credit scores.
Mortgages also differentiate based on their rates and term lengths. For example, there are short-term (15-20 years) and long-term (30-40 years) mortgages available. There are also fixed and variable-rate mortgages. As the Brisbane mortgage broker states, the interest rate on a fixed-rate mortgage loan is set for a certain period, usually between one and five years. On the other hand, the interest rate on a variable-rate mortgage can change at any moment in response to changes in the market or the lender’s decision.
Know What You Can Afford
The debt-to-income (DTI) ratio is a useful tool to determine how much house you can afford. Simply sum up all of your monthly debt payments and divide the total by your gross monthly income to get your DTI ratio. You’ll have more room in your budget for non-home-related expenses the lower the DTI ratio is lower. That is why it is critical to consider all of your monthly expenses but also your savings for future endeavors.
No one wants to be shackled by a mortgage payment that prevents them from living their usual life and achieving goals. You can use many financial calculators online and find out how much house you can afford by simply entering your income, monthly expenses, estimated down payment, and other details of the mortgage.
Find a Mortgage Lender
Finding a mortgage lender is the next step after you’ve decided on a mortgage type. If you want recommendations, talk to people you know, such as your agent, friends, and family. You should also do some online research, read consumer reviews, and check the rating sites. Many factors beyond the interest rate and pricing should lead to your choice.
Seek assistance if you are unsure of what to search for. If you work with a mortgage broker, they can show you all the available loan alternatives and help you negotiate better terms than you could on your own. Keep in mind that there might be a wide range of fees, interest rates, and other conditions offered by different lenders. When looking for a better rate, a mortgage broker is a great source of help.
Get Pre-approved
Get pre-approved when you have decided on a lender. With a pre-approval, the lender will go over your finances to decide if you meet the criteria and if you do, which amount they are willing to lend you. If you haven’t been preapproved, many sellers will not even consider your offer.
Mortgage pre-approval is not the same as prequalification, so keep that in mind. A pre-approval includes a thorough credit check and much more documentation. Mortgage prequalification is a less formal process and a way for lenders to tell you you’d be a good applicant. Still, being pre-approved for a mortgage doesn’t ensure you’ll really get one. Until you’ve made an offer on a house and gone through the mortgage underwriting process, that can’t happen.
Find Your Dream Home and Complete Application
When you have a preapproval in hand, you can start looking for the perfect home with confidence. Get ready to jump at the chance to buy a house that meets all of your needs in terms of price and condition. Get a good idea of your needs and what you can afford before you start exploring. Once you’ve found a home you’re interested in buying, you can complete a mortgage application.
Rising home prices and interest rates caused by the epidemic have made it harder than ever for first-time homeowners to get a mortgage. But, as you can see, there are many options out there to assist first-time buyers in getting a foot in the door. Follow the steps mentioned above and you’ll secure a way to your dream home.
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Whether she is researching the latest trends in home decor, life-changing destination getaways, or the best way to maintain your finances, Dewey takes pride in leaving no stone unturned. She is passionate about distilling and delivering high-quality information that you can use to upgrade your life.
