A Guide for Homebuyers Obtaining a Mortgage

A Guide for Homebuyers Obtaining a Mortgage

Congratulations on deciding to purchase your first home! The home buying process is an exciting one and homebuyers most likely want to jump right in to searching for your perfect house. While it doesn’t hurt to look, there are some important financial considerations homebuyers need to make before landing on the house of your dreams.

Chances are, if you are like the majority of homebuyers, you will need to obtain a mortgage in order to buy a house. Going through the pre-approval process before you begin looking at houses will help you to know how much house you can afford.

When you are looking for a lender make sure to interview several. Ask questions about what programs they offer, along with their interest rates. Choose a lender that you will feel comfortable working with.

There are three major parts to homebuyers getting approved for a mortgage:

1. Have a Good Credit Score

Your credit score plays a major role in whether you are approved for a mortgage or not. If you are approved, your credit score will also factor into the interest rate that you receive on your loan. The higher your credit score the better chance of approval with a low interest rate. If you have a low credit score you run the risk of being declined for a loan.

When you first start thinking about wanting to buy a house you need to check your credit report. It is not uncommon for people to find errors on their report. It can takes months to have these errors removed.

Start the process early so your credit report is clean and ready when you apply for a mortgage. You will also want to find out your credit score so you can see if you need to start working on bringing the score up.

If you need to improve your credit score the critical steps are going to be (1) make payments on time (2) pay any old debts and (3) pay down on balances.

2. Income

This should go without saying, but if you want to be approved for a mortgage you are going to need to prove that you have a reliable source of income to make your payments. Many lenders like to see two years of steady income.

This can make it more difficult for homebuyers who are just starting their careers, or for those that are self-employed. If you find yourself in this situation, your lender may require a larger down payment from you to approve you for your loan.

Your lender will look at your debt-to-income ratio. They want to see that you have a significant amount of income to pay your debts. The recommended maximum is 36%. If your debt-to-income ratio is higher than this, you should work to pay down your debts or raise your income to improve your chance of being approved.

3. Down Payment

When you are ready to purchase you are going to need a down payment. Most conventional loans will require you to have a down payment of 10%-20%. There are other options available on the market, so you will want to talk to your lender about your possibilities. Some FHA loans have down payment requirements as low as 3.5% and there are other programs available for veterans and active duty military.

Make sure you have these three areas in line before starting your home search. By doing so you will know what to expect throughout the process and improve your chances at being approved. You will also help to speed along the process to mortgage approval and a life as a homeowner.