If you are on the hunt for your own home, you will need to find a way to finance your purchase. The process of getting your loan approved can be tough and complicated, but by following these simple tips, you can find yourself getting an approval.
1. Increase Your Credit Score
Your credit rating, or your FICO score, is one of the most important things that lending institutions look at when you apply for a loan. It will tell them if you are responsible in paying money you owe and that you do not get behind on payments. Moreover, this number will dictate the interest rate you will get and if you have a low credit score, you can see yourself paying thousands of dollars more yearly.
You can increase your credit score by paying off balances on your credit card and paying off other bills on time.
2. Do Not Change Jobs Too Often
Lenders like to approve applicants who have a long tenure with one employer because it reassures them that you will not be unemployed in the foreseeable future. This means, you must try to stay in your company for at least 2 years and avoid changing jobs often. Make sure you also do not switch companies while applying, as this can greatly affect your application. Getting a new job that pays less or becoming self-employed makes you look less credible to lenders.
3. Save For Your Downpayment
Try to aim for 5 to 10% of the homes purchase price as your downpayment. This proves to lenders that you are serious about buying a house and will also show them that you have some additional funds. Moreover, if you save more for downpayment, you can significantly reduce your mortgage balance and monthly payments. Opting for 20% will also mean you do not have to pay for private mortgage insurance.
4. Calculate What You Can Afford
You will need to be realistic as to how much you can really afford. This means calculating all expenses, including those that might be related to owning a home, like HOA fees, repairs, utilities, insurance, and property taxes. You do not want to be too optimistic and come up short monthly until your debts pile up.
5. Avoid New Debt
After applying for a home loan, try to avoid getting new loans or getting new debt. The lenders will re-check your financial standing during the processing of your application. If you suddenly charge purchases on credit cards, it might affect the outcome of your home loan application.
By following these simple steps, you can prove to any lender that you are worthy of your home loan and soon, you can finally have the means to purchase your new property.