Methods for securing a home loan:
Revamped Guide:
Securing that Dream Home: A No-Nonsense Guide to Mortgage Approval
Wanna lock down a mortgage and grab that dream home? Here's the straight-up lowdown on the mortgage process, so you'll be ready to crack that seller's door wide open.
Step 1: Shoring Up Your Credit
The devil's in the details, and when it comes to mortgage approvals, the credit game is no exception. To land the best offer, you'll want a score in the 700s, proving you've got a knack for managing debt. Got a spotty credit history? You can still score a mortgage, but you'll likely pay a higher interest rate.
Wanna beef up your credit score? Here are some tips to help bring that number up:
- Empower your wallet! Consistently pay bills on time, and scale back those credit card balances.
- Squash any past due accounts and keep 'em current for a more impressive credit report.
- Snoop on your credit reports weekly at AnnualCreditReport.com and zoom in on any inaccuracies, flagging these errors with the reporting bureaus.
- Pore over your score before applying for a mortgage. It'll reveal key factors affecting your score, and help you iron out any kinks before loan time.
Check out How to Improve Your Credit Score for a Mortgage for a deep dive on credit score improvement.
Step 2: Get a Clue About Affordability
Before you set your sights on the perfect property, it's essential to get a handle on your finances. Calculate your debt-to-income (DTI) ratio by adding up monthly debt payments and dividing that figure by your gross monthly income. A lower DTI ratio leaves a bigger budget buffer.
Don't forget to factor in future expenses (like unexpected repair costs) and lifestyle priorities. You don't wanna wind up strapped down, healthily minted but unable to enjoy life's little luxuries. Use our affordability calculator to get a grip on what you can and can't afford.
Step 3: Save Up a Campus Fund
Getting your hands on a hefty down payment is crucial whenever you're intent on buying a home. Can't manage 20%? No worries, mate—there are other options! Conventional mortgages require 3-5% down, while FHA loans demand 3.5%. VA and USDA loans don't even demand a dime on down!
But the down payment isn't the only saving goal on your list. Build up cash reserves, aiming for roughly six months' equivalent of your mortgage payments. Got your down payment already in the bank? Weekly parking money or a portion of your paycheck can help bolster that war chest.
Wanna know more about down payments? How Much is a Down Payment on a House? got you covered.
Step 4: Rate Rumba
With your credit washed and your savings tidy, it's time to cruise the mortgage market. The main mortgage types include:
- Conventional loans: No government backing, but you'll need a credit score in the 620s and a 3-5% down payment. Relaxed requirements for VA and USDA loans are available if you've served or plan to live rurally.
- FHA loans: Guaranteed by the Federal Housing Agency, these loans come with more lenient financial demands, demanding 3.5% down and minimal credit score requirements (580).
- VA loans: Compensation for U.S. military service equals no down payment reqs, with varying credit score demands across lenders.
- USDA loans: No down payment required, meant for those looking to settle in designated rural areas.
- Jumbo loans: For pricey properties ($806,500 in most areas or $1,209,750 in expensive regions), these loans tend to come with steeper minimum credit score and down payment requirements.
You'll want to weigh each loan's interest rates and fees, duh—because even a minor rate difference can amplify savings over time. And consider if you'll have to cough up for mortgage insurance and how long you'll be on the hook for this added expense.
Newbie homebuyers may prefer FHA loans due to their lenient requirements, but those with a score above 620 could be better off with conventional loans. Compare current mortgage rates breaks down your options.
Step 5: Picking the Right Lender
Once your credit score and savings are in tip-top shape, it's time to find a lender that'll treat you right. "Snag tasty discounts by, scouting out deals from friends and family, pouring over recommendations, and delving into customer reviews on rating sites,**" recommends Guy Silas, an Embrace Home Loans branch manager.
Who is the best company to get a mortgage with? has additional tidbits on locating your ideal lending partner.
Step 6: Preapproval: PREACH IT!
You've picked a lender, tasty rates in hand? Time to get preapproved for a mortgage. This step will assure potential sellers that you've got the green light for financing, and it'll provide you with a clear financial ceiling.
Preapproval differs from prequalification—the latter is less formal and only implies that you'd qualify for a loan. To tackle preapproval, you'll need to provide loans with heaps of documentation (like proof of income and assets) and undergo a credit check.
But remember, that preapproval doesn't lock down a mortgage—that'll come after you successfully slay mortgage underwriting, should you successfully put in a bid on a property.
Step 7: Matchday
With mortgage preapproval in hand, buckle up for a house-hunting adventure! Keep an eagle eye out for properties that fit your budget and tickle your fancy. And when you find your "one," you'll be ready to place a killer offer.
Step 8: Submit an Application for a Loan
If you've found the house you dream of calling "home," it's now time to apply for a mortgage. You can typically complete a digital application, but visiting a loan officer in person can sometimes expedite the process.
What is a mortgage application? has more on the nitty-gritty of the application process.
Step 9: Suit Up for the Underwriting Process
While preapproval helps establish your eligibility, it doesn't guarantee a loan. The final yay or nay comes from the underwriting department, which assesses an application and property risk. Here's a glimpse of the underwriting gauntlet:
- Loan officer confirms the information you provided during the application.
- After you've made an accepted offer on a home, the lender orders an appraisal of the property to ensure the amount in your offer is sensible.
- A title company conducts a title search to make sure the property can be transferred.
The underwriting process has more on smoothie-ing through this crucial phase.
Step 10: Get Ready for the Closing Dance
Once you've received the mortgage approval stamp, the only thing left to do is to close on your new home. This process varies by state, but in a nutshell, you'll need to sign tons of paperwork, doling out funds for closing costs along the way.
Who is the best company to get a mortgage with? lists typical closing costs you'll encounter.
FAQ
- What income do I require to land a mortgage?
- The amount of income required to secure a mortgage hinges on the amount of mortgage you need as well as your existing debt. Aim for a debt-to-income (DTI) ratio of no more than 36% (up to 50% in some cases) to determine if your income is adequate.
- How much down payment do I need for a mortgage?
- Down payment requirements vary by mortgage type:
- 3-5% for conventional loans
- 3.5% for FHA loans
- 0% for VA and USDA loans
- I need a mortgage—what are my options?
- You can score a mortgage from a direct or retail lender (like a credit union, bank, or online lender), a mortgage broker, or another type of lender. Compare top mortgage offers to find your perfect match.
- I'm ready to plunge into the mortgage pool—what are some burning questions to pose to lenders?
- Strut up to lenders and don't hesitate to ask mortgage lenders questions as you scan the market. Chat with lenders about their loan for your unique situation, and don't overlook programs offering down payment assistance.
- To get the best interest rate on your mortgage and manage your personal finances effectively, aim to have a credit score in the 700s and a low debt-to-income ratio.
- When shopping for a mortgage, compare rates and fees across conventional, FHA, VA, USDA, and jumbo loans to find the best deal, and consider the impact of mortgage insurance on your expenses.
