Possibly the hardest part about buying a house is obtaining a home loan. It can take years to save for a downpayment, build up credit history, pay off old credit card debts, or bring down student loans and other various loans to a manageable amount. But do you actually need to be approved for a home loan? And how do you qualify for an amount that will get you into the home of your dreams. Starting the process of owning real estate is stressful, but realtors want you to have all of the information you need when you are applying for a home loan. To get the personal guidance you need during this complicated process, contact our real estate agency today.
Your credit history and credit score are probably the most important thing your bank will consider when approving you for a home loan. When you can show that you have a credit history and have a history of making your monthly payment on time and consistently, that can show the bank that you are able to make your mortgage payments each month. However, there is a little more to it than just making payments on time. A credit score of 740 or above is considered to be good, and a credit score below 600 is poor. Depending on the lender and the type of loan, it is still possible to be approved for a home loan with a poor credit score, but the interest rate may be higher.
Check your credit report before applying to look for instances of identity theft, collections, or judgments. Collections and judgments on a credit history should be taken care of and removed from your report before applying for a home loan.
Being approved for an FHA loan, the down payment should be around 3.5 percent of the sales price of the home. For those who don’t qualify for an FHA loan, a typical down payment is around 5 to 10 percent of the sales price. When saving for a down payment and applying for a home loan, it is also important to remember that there will need to be extra money for closing costs and the home inspection.
Debt to Income Ratio
Even when you have a higher credit score, your debt to income ratio could still be too high. With a high number debts, including installment loans, student and car loans and credit cards, if you also have a lower monthly income, your debt to income ratio will be higher. This and your credit score and two main things that your bank will look at to determine whether or not to approve your home loan. A bank will want to see that you are not spending more than 50 percent of your monthly income on payments.
Thinking about giving a bank all of your financial information can be scary and overwhelming, but when you know what the bank is expecting in order to approve a home loan, you can prepare beforehand. Think ahead to when you can begin searching for properties for sale and it will all be worth it. Our real estate agents can guide you through the home loan application process and we will be there for you when you are approved. Contact our real estate agency today.