How to Get Approved for a Home
Preparation and education are the top secrets to get approved for a home loan. Mortgages can be complicated but it gets simpler the more you understand the process. Below are the best tips to prepare and ensure approval of your home loan application.
- Know your credit score.
Review your credit report and history before submitting a mortgage application. It literally takes a few minutes to pull your report and order your score. How does it look? A large percentage of lenders require a minimum credit score of 680 to get approved for a home. If your score is less, they can deny you.
- Improve your score.
The higher your credit score, the better. A few points can be the difference in whether you qualify or not. In addition, it determines what kind of interest rate you receive. So maximize your credit score to not only get approved for a home but to also get the best mortgage rates. You can do simple things to polish your numbers: pay existing balances on your credit card, lower your credit utilization ratio, make all payments on time, and avoid applying or opening a new credit card.
- Get pre-approved.
Pre-approval means you have completed a mortgage application and the lender has checked your credit and verified your income and assets. There are a few documents you need to prepare for your pre-approval. Some of these include your pay stubs, tax returns, and credit report. The requirements vary per lender so check with yours to learn the specifics. Note that getting pre-approved is different from pre-qualifying.
Pre-qualifying means the lender did a soft inquiry on your credit history and believes you may meet their requirements to get approved for a home. Meanwhile, getting pre-approved means the lender has reviewed your credit history and verified all your income documents and bank statements. When you are pre-approved, one foot is already inside the door of success. You are likely to receive the funding you need. Pre-qualifying does not really mean anything.
- Save for the downpayment.
Requirements for getting a mortgage loan often change but the fact that you need cash to pay for certain things upfront remains the same. The downpayment is the most obvious expense. Each lender establishes its own criteria for down payments, but on average, you will need at least a 3.5% down payment. If you can afford to pay higher, all the better. This lowers your mortgage balance and alleviates your private mortgage insurance. There are also closing costs to think about. These are the fees charged by the lender for issuing the loan. It ranges from 2% to 5% of the loan amount and must be paid with cash.
- Compare loan offers.
It is always a good thing when you get approved for a home, but do not go for the first lender that makes you an offer! It is best to compare loan offers from at least three mortgage companies to find out which one gives you the most competitive rates. Closing costs, lender fees, and even interest rates will be different from lender to lender. You can also leverage the loan estimates you receive in negotiating lower closing costs and interest rates. So shop around and take your time. If you get approved for a home loan, chances are, other companies will follow!