Finding the perfect home is only one step of the process. Now its time to get serious. Its time to find out if you will qualify for a home loan in order to purchase it.
This step can seem overwhelming. There is a ton of paperwork that needs to filled out and you have to have all your finances in order. It can sometimes feel like an unbearable task, but with a trusted real estate agent and a few quick tips, you’ll make it through with ease. Below are 6 easy tips to breeze through the home loan application process.
1. Check On Your Credit Score
This number is important. Your credit score plays a huge role in buying a new home. It can affect everything from how much of a down payment you’re going to have to put down to what your mortgage rate will look like. Experts suggest having a score, at least, between 580-620 to be considered for a loan. Here are three ways you can bring your credit score up before entering the housing market:
Pay Down Balances – One of the quickest ways to boost your credit score is to get those credit card balances down as low as possible. Your credit score is partly based on your overall credit balance versus your total available credit.
Settle Collections – Have an old bill that fell into collections? The best thing you can do is make it a priority to get that bill cleared up. Debt owned by a collections agency will absolutely show up on your credit report and cause it to go down over time.
Limit Hard Inquiries – Every time you apply for a new credit card or auto loan it counts as an inquiry against your credit score. Too many of these inquires could end up lowering your over all score. If you know you’re going to be in the market for a home soon – try and keep these inquiries to a minimum or hold off all together until after you’ve closed on a home.
2. Get More Than One Quote
Make sure you’re getting the best bang for your buck. It can be exciting to hear that you’ve been approved for a home loan, but it doesn’t mean you’ve been approved for the best loan. Shop around with different lenders and find out if you can do better. Do keep in mind, however, that the more inquiries you put out, the more hits your credit score will take.
Your best bet? Do your research on lending companies and pick maybe 2 or 3 that you feel comfortable enough to proceed to the application process with.
3. Collect The Paperwork You Need
This seems to be the part that daunts potential home owners the most. The list of paperwork you need to gather can seem endless, but it doesn’t have to be stressful. Here’s a small list of documents you can start gathering today to make the application process easier.
- Tax Returns
- W-2 Form
- Pay Stubs
- Bank statements
- Photo identification
- Rental Record
- Debt Information
4. Be Ready To Explain Your Income
No, its not just enough to show potential lenders your income, they’re going to have questions.Lenders like to see records as far back as two years. This is yet another reason to have a reliable real estate agent by your side during the home buying process.
Lenders are going to ask you questions about your employment, what kind of debts you have, how much of a down payment you plan on putting down, and what you plan on using your new property for.
5. Start Saving Early
Not only do lenders want to see that you have money stashed away in your savings account, they want to see that its been there for a little while, also known as “seasoned.” They want to know that you’re financially secure enough to have money put away and kept there for a rainy day. People often ask how much money they should have in their savings account to please lenders.
A general rule is to take the total amount of your monthly expenses and double that number. For example – if your monthly expenses add up to $2,000, you should have at least $4,000 put away in the bank. Your best bet is start saving months before you even start getting serious about looking for a house.
*Don’t forget, for your own piece of mind, a new home means new financial responsibilities. Keep in mind that your monthly expenses may increase and adjust accordingly.*