Getting approved for a mortgage for the first time can be difficult. When you’re buying your first home, you may not be familiar with how mortgage loan approvals work. There are key requirements you must hit in order to get that much sought-after approval. Take the time to educate and prepare yourself before applying so you’re not going in blind.
Know your credit score. Few things halt a mortgage loan application quicker than a low credit score. Don’t assume that your credit score is high enough to qualify – check it first. Not only will checking your credit score let you know where you stand, but it will also tell you if you’ve fallen victim to identify theft. That alone is worth checking on your credit score frequently!
Many lenders require a minimum credit of 680 (or, for FHA mortgage loans, 620). If your score falls below the minimum, lenders can and will deny your request for a loan. In addition to your credit score, lenders will also look at to see if you have missed or frequently late payments on your bills. Neither looks for you. Make sure you clean up your credit history before applying for a loan.
Save up your cash. Many mortgage lenders require a down payment, so be prepared to hand over cash before walking in to the lender’s office. Having no cash to offer can get you quickly rejected. How much of a down payment you’ll need can vary on a few factors, including the type of loan you’re seeking and the lender. Typically, you’ll need a 3.5% down payment at least, but if you can afford a higher down payment then that can work for you in the long run. A 20% down payment not only knocks down your mortgage balance, it also alleviates private mortgage insurance or PMI. Lenders attach this extra insurance to properties without 20% equity, and paying PMI increases the monthly mortgage payment.
Keep in mind that a down payment isn’t the only think you’ll need cash for, too. You’ll need to pay for closing costs, home inspections, home appraisals, title searches, credit report fees, application fees, and other expenses. Closing costs alone are roughly 3% to 5% of the mortgage balance and must be paid to your lender before you can finish the deal.
Don’t switch jobs in the middle of buying a new home. Any change to your employment an income status can put a stopper in the mortgage process. Your lender, after all, approves your home loan based on the information you provided in your application. When that information changes – especially in a way that negatively impacts your income – it can effect the lender’s confidence that you’ll be able to pay off your loan. They will need to reevaluate your finances to see if you still qualify for the loan.
Pay down old debt and avoid new debt. You can qualify for a mortgage loan without a zero balance on your credit cards. However, your current debts will determine if you can get a mortgage and how much of a loan you get. If you have a high debt when lenders evaluate your debt-to-income, the lender can either turn you down entirely or offer a much lower mortgage. A general rule of thumb is that your monthly debt payments, mortgage included, shouldn’t exceed 36% of your gross monthly income. The lower your consumer debt, the better your mortgage rate.
After you’re approved for a mortgage, avoid new debt while going through the mortgage process. Your lenders will re-check your credit before closing. If you’ve acquired new debts, this can stop the mortgage closing. So, don’t make any major purchases – such as a new car or home appliances – until after you’ve closed your mortgage loan.
Get pre-approved for a mortgage. Getting pre-approved before looking at homes is the responsible choice. You know what kind of budget you’re working with and you’re less likely to fall in love with a house you can’t afford. To get pre-approved, you simply contact a mortgage lender and submit your financial and personal information. If they accept, your pre-approval will include everything you need from how much you can afford to the interest you’ll pay on the loan. With a pre-approval letter on you records, the funds will be available as soon as a seller accepts your bid.
Know what you can afford. Lenders can and sometimes do approve clients for more than they can afford. If your lender offers you a high loan, you don’t have to use all of it. Still focus on picking a home that is comfortably within your budget. When lenders determine pre-approval amounts, they’re basing their numbers on your income and credit report. They’re not factoring in day to day costs such as daycare, insurances, gas, or groceries. You must have a complete plan for you monthly costs and avoid something you simply can’t afford.
Stonebridge Mortgage Group can advise you on your mortgage needs. For a professional assistance with mortgages and related services, look no further than Stonebridge Mortgage Group. You can rely on Stonebridge Mortgage Group to help guide you through the home buying process. We help get you pre-approved for a mortgage and help with your real estate loans and other mortgage solutions, both residential and commercial. Stonebridge Mortgage Group serves the greater Portland area and are in Gresham, Oregon. Don’t wait to get quality assistance with buying your home!