Some people don’t know the first thing about getting a mortgage loan. They hear messages about dropping interest rates and lower house prices and hurriedly decide to jump into their own house. But the process of getting a home loan is different from getting a car loan or renting an apartment, and applicants who do not recognize these essential differences are often disappointed when a lender denies their mortgage loan application.
Educating yourself is the key, and there are a number of ways to prevent this sadness and disappointment when applying for a mortgage loan.
Get your mortgage loan approved
Buying a home is already stressful and poorly prepared, increases anxiety. Why do you put yourself through this? Learn how to think like a lender and learn about the best ways to get your mortgage approved:
1. Know your credit score
It takes literally a few minutes to draw your credit report and order your credit score. But surprisingly, some future home buyers never assess their scores and credit history before applying for a home loan, assuming their scores are high enough to qualify. And many never consider the possibility of identity theft. However, a low credit score and credit fraud can make a mortgage application disappear.
Credit scores and credit activities have a major impact on mortgage approvals. According to the Home Loan Learning Center, a large percentage of lenders require a minimum credit score of 680 (620 for FHA mortgage loans) – and if your score drops below 680, lenders can refuse your application for a conventional mortgage loan.
In addition to the higher creditworthiness requirements, various missed payments, frequent delays and other derogatory credit information can stop mortgage approvals. Pay your bills on time, lower your debts and stay up to date with your credit report. Clearing your credit history in advance and solving errors on your credit report are the key to maintaining a good credit score.
2. Save your money
Requirements for obtaining a mortgage loan often change, and if you are considering applying for a home loan in the near future, be ready to cough up the money. If you run into a lender’s office without money, this is a quick way to reject your home loan. Mortgage lenders are cautious: while they once approved mortgage loans without zero declarations, they now need a down payment.
Prepayment minimums vary and depend on various factors such as the type of loan and the lender. Every lender sets its own criteria for prepayments, but on average you need a minimum deposit of 3, 5%. Strive for a higher down payment if you have the means. A 20% down payment not only causes a waste of your mortgage debt, but also relieves private mortgage insurance or PMI. Lenders attach this extra insurance to real estate without 20% equity, and paying PMI increases the monthly mortgage payment. Get rid of PMI payments and enjoy lower, more affordable mortgage payments.
However, prepayments are not the only costs that you need to worry about. Getting a mortgage also includes closing costs, home inspections, home reviews, title search, credit report costs, application costs and other expenses. The closing costs are approximately 3% to 5% of the mortgage debt – paid to your lender before you can close the deal.
3. Stay at work
I know someone who has stopped working seven days before she and her husband would close their mortgage loan. I have no idea why, and unfortunately they were not doing well. They could not close their new house and they lost a lot.
Sticking to your employer when going through the buying process is crucial. Any change in your work or income status can stop or significantly delay the mortgage process.
Lenders approve your home loan based on the information in your application. Taking a lower-paid job or stopping your job to become self-employed throws a key in the plans, and lenders must re-evaluate your finances to see if you are still eligible for the loan.
4. Pay off debts and avoid new debts
You do not need a zero balance on your credit cards to be eligible for a mortgage loan. The less you owe your creditors, the better. Your debts determine whether you can get a mortgage and how much you can get from a lender. Lenders evaluate your debt-to-income ratio before approving the mortgage. If you have a high debt ratio because you have a lot of credit card debts with you, the lender can reject your application or offer a lower mortgage. This is because your full monthly debt payments – including the mortgage – may not exceed 36% of your gross monthly income. However, if you pay off your consumer debt before you complete an application, you lower your debt-to-income ratio and you can build up a better mortgage interest rate.
But even if you are approved for a mortgage with a consumer debt, it is important to avoid new debts as you go through the mortgage process. Lenders re-check your credit before closing time and if your creditworthiness report reveals additional or new debts, this can stop the mortgage closing.
As a rule, avoid large purchases until after you have taken out the mortgage loan. This can be the financing of a new car, the purchase of household appliances with your credit card or the granting of a loan from someone else.
5. Get approved for a mortgage in advance
Being approved for a mortgage loan before looking at houses is emotionally and financially responsible. On the one hand you know what you can spend before you bid on real estate. And on the other hand, you avoid falling in love with a house that you cannot afford.
The process of prior approval is fairly simple: contact a mortgage provider, submit your financial and personal Augusta Bracknellijke information and wait for a response. Pre-approvals include everything from how much you can afford to the interest you pay on the loan. The lender prints a pre-approval letter for your records and funds are available as soon as a seller accepts your bid. Although it is not always that simple, it can be.
6. Know what you can afford
I know from my own experience that lenders approve applicants in advance for more than they can afford. After receiving a pre-approval letter from our lender, my husband and I wondered if they had read the correct tax return. We appreciated the generosity of the lender, but finally decided on a house that fits comfortably within our budget.
Don’t let lenders dictate how much you should spend on a mortgage loan. Lenders determine the amounts for advance approval based on your income and credit report, and they do not take into account how much you spend on childcare, insurance, groceries or fuel. Instead of buying a more expensive house because the lender says you can do it, be smart and keep your accommodation costs within your reach.
If you do not meet the qualifications for a mortgage loan, do not be discouraged. Instead, let it be a motivation to improve your credit and finances. Many people have risen above credit problems, bankruptcy, foreclosure and seizure, especially to buy their first home. Make sure you implement a realistic plan and stick to it.
How long did it take before you realized your dream of home ownership? If you are currently working on this goal, what steps have you taken?
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