How to Get Prequalified for A Home Loan
Many people don't realize but they often skip the first step in buying a home. And that is - pre-qualification. Getting prequalified for a home loan can save you tons of time and aggravation down the road.
Before speaking to a mortgage lender, determine if there are actions that you need to take to increase your chances of being approved. At the very least, you should be aware of the following:
1. Know Your Credit Score
It literally takes a few minutes to pull your credit report and order your credit score but surprisingly, some home buyers never review their scores and credit history before submitting a home loan application. They either assume that their scores are high enough to qualify or they are fearful of being disappointed by their own score. However, a low credit score can stop a mortgage application dead in its tracks.
2. Save Your Cash
Requirements for getting a mortgage loan often change, and if you are considering applying for a home loan in the near future, it's wise to have some savings accumulated.
3. Stay at Your Job
Quitting your job does not necessarily mean that your home loan will fall through but there is a possibility. Mortgage lenders can put a halt to your closing if your financial situation changes too drastically. It's best to wait until after you settle for big career changes.
4. Pay Down Debt and Avoid New Debt
You don’t need a zero balance on your credit cards to qualify for a mortgage loan. However, the less you owe your creditors, the better. Your debt to income ratio (how much you spend vs. how much you make) will in part determine if you can get a mortgage as well as how much you can acquire from a lender. This is because your entire monthly debt payments, including the mortgage, shouldn’t exceed 36% of your gross monthly income. However, paying down your consumer debt before completing an application lowers your debt-to-income ratio and can help you acquire a better mortgage rate.
5. Know What You Can Afford
Don’t let lenders dictate how much you you are comfortable spending on your home each month. You control that portion of your budget. Identify an amount that is comfortable for all parties and includes provisions for things like property taxes, and home repairs.