Whether you’re buying your first home or looking at home loan options for refinancing, you can do a lot to improve your odds of getting favorable terms on a home loan. Homeownership is a primary goal for most people and the market is more accessible than you might think. Still, home loans are completely different from other types of loans, and those without experience might make obvious mistakes that can negatively affect their ability to obtain a good home loan. If you’re hoping to take out a home mortgage loan in the near future, let’s go over five tips to help you get started.
1. Save cash.
You don’t need to be able to pay the entire listed price in cash, but you’ll need money to put down if you’re hoping to get a home loan. What type of down payment a lender will require can vary, but most require at least 3.5 percent. Experts suggest that if you can afford to, putting 20 percent down is ideal.
2. Maintain a steady job.
Having a demonstrated source of income during the home-buying process is incredibly important. Your loan is approved based on the information you provide about your position and income. Quitting or reducing your income to take a different job is ill-advised if you’re trying to purchase a home. You’re trying to present a picture to a lender to demonstrate your responsibility, and your job is a huge part of that. You can even do a free online background check to see what a stranger might see when considering you for a loan, or you can even use one to check the background of a potential mortgage specialist.
3. Reduce your debt, avoid new debt.
It’s okay to have debt when purchasing a home, but you need to prove that the additional payments from your mortgage would be within your budget. If you do carry a balance on credit cards or have student loans, try to pay them down as much as you can before you start searching for your new home. Your credit will be checked multiple times while you’re applying for a loan, so don’t take on new debt until after you’ve closed on your mortgage loan.
4. Get pre-approved for a mortgage.
It’s just smart to know exactly what you can afford to spend before you start looking at houses. You won’t waste your time on properties you can’t afford and you’ll be able to bid wisely knowing what your upper limit is. All you need to do is reach out to a lender and fill out an application with your personal and financial information. The lender can then provide information on how much you’ll be approved for, what the interest rate would be, and give a letter of pre-approval for you to hold onto.
5. Stay within your budget.
You’re the person who is ultimately responsible for making a smart financial decision when taking out a home mortgage loan. Lenders only look at the information you provide them and often will approve potential buyers for a higher amount than is smart to borrow. You need to make a realistic financial plan and stick to it.
Though some unscrupulous lenders might make big promises, the basics of homeownership remain fundamentally unchanged over time. Building up savings and good credit, doing ample research in advance, and balancing your monthly payments with your annual budget are all simple, logical practices for a potential home buyer. It’s also wise to seek pre-approval for your loan before searching, that way you’ll know exactly what you can spend and what interest rate you’ll be responsible for. As long as you prioritize your financial health, you shouldn’t have too much trouble getting approved for a reasonable home mortgage loan.