A mortgage application is not meant to be taken lightly, especially in light of the recent chaos that slammed the mortgage industry. Lenders are stricter than ever in their guidelines to qualifying a buyer and for those wishing to be approved for a mortgage loan, preparation is vital.
Purchasing a home is likely the biggest investment you will make in a lifetime and if you are a first-time home buyer, you need to be ready to see the process through from application to closing to handle everything in between. Here is a checklist of things you can do to increase your chances for a successful mortgage approval:
____ CHECK YOUR CREDIT
Every individual with a credit history has the right to request a free copy of their credit report annually from the three major credit reporting agencies. Perspective buyers should obtain all three copies and pay the additional fee for the accompanying credit score. Lenders are looking to prevent as much default risk as possible and will only commit to loans with creditworthy applicants. If your credit score is not up to par with the lender’s guidelines, you can be turned down for the mortgage completely.
____ IMPROVE YOUR CREDIT
If you find your credit score is too low to be eligible for a loan, you should work on improving your financial status by paying off old debts and eliminating negative credit marks by reporting mistakes to the credit reporting agencies or letting enough time pass for items to be removed from your credit report. With better credit scores, you will have more options during the mortgage loan shopping process and can secure a better interest rate.
____ SHOP FOR LENDERS
There are a variety of resources where you can secure a mortgage loan including your local bank, credit union, or local mortgage loan company. Compare several lenders by checking out the interest rates and requirements to see which works best for you. Do not overlook the various government-sponsored programs like FHA or USDA loans if you do not meet the requirements for a loan from a traditional lender.
____ GET PREAPPROVED
Before even looking for a new home, you should speak with a lender about preapproval on a loan. The lender will need to do an extensive check into your finances and can provide an idea of how much money you are qualified to receive. The preapproval step can help you shop more efficiently for a house based on the home price you can afford. Additionally, a letter of preapproval from a mortgage lender often gives the buyer the upper hand when dealing with realtors and negotiating with the seller.
____ SAVE MONEY EARLY
Lenders want to know perspective buyers are serious about getting a home and most require a down payment of 20% of the home sales price to secure the loan. There are options for down payment assistance through the state and federal government but it is in a buyer’s best interest to save enough cash to handle the down payment, closing costs, and other expenses associated with the home purchase and moving. The earlier you begin saving, the more you can accumulate. Additionally, the down payment will help to lower the amount of money you need to borrow from the lender.
____ FIND YOUR DREAM HOME
After securing your loan and understanding the amount you are eligible to receive, you can contact a realtor or start house hunting on your own. Backed with the knowledge you have, the hunt will be simpler because you know how much you can afford and can search from homes within the right specifications.
