Tips on How to Get a Mortgage Loan on a Home
Owning your own home is the dream of many people and it could be your reality. Home ownership comes with many benefits, but also has some drawbacks. Lenders often use the drawbacks as a guideline to assess not only the amount of money for home loans, but also whether the loan is even possible. Some of the tips below will help you improve your chances of getting a mortgage loan and help you become a happy homeowner sooner.
1 Know your price range.
Take the time to look at your budget and find out how much money you actually have for monthly payments with a little extra wiggle room for emergencies. Most lenders want the payments, including taxes, insurance and maintenance expenses to remain within a range that starts at 28 percent and ends at 44 percent. The better your credit is, the higher the percentage of income the payment can be.
2 Find ways to improve your credit score.
Your credit score not only determines whether or not you'll get a loan, it also determines how much house you can actually purchase. First find get a copy of your credit score from all three credit bureaus and look for any errors that might be affecting your score. You can dispute those to eliminate them from your report. Check card limits to make sure they're updated and most important of all, clean up debt and make payments on time.
3 Find a home that doesn't need a lot of loving care.
If your listing says, “fixer upper,” it may mean it needs a new roof, new furnace or other major repair. A home that needs large expensive repairs or updating may not even be eligible for a loan, even if you are. While it might not seem fair, lenders know from experience that these homes can be money pits and are actually protecting the borrower from making a huge mistake that could destroy their budget. Instead of looking for a home that needs work, look for the ugliest home in the nicest neighborhood you can afford, which doesn't need major repairs, just cleanup. The cost of trimming bushes is most your labor and cosmetic changes are often inexpensive and don't need to be finished immediately to make the house livable.
4 Get preapproval.
Start working with a lender that specializes in home loans, such as a bank or credit union, early so you know exactly how much you need for a down payment and the approximate amount it will cost for closing the loan. Closing costs can take a considerable amount of money that you might have expected to use as a down payment.
5 Save a nest egg for a down payment.
One of the biggest problems facing first time home buyers is saving the money for a healthy down payment. While there are some grants that help first time buyers with the down payment, many new home buyers find they have to come up with the money themselves. If you have a down payment equal to 20 percent of the cost of the home plus closing costs, you can get a conventional loan. Conventional loans don't require mortgage insurance---the extra payment you make each month that protects the lenders, not you. It pays them in case you default on the loan.
All the tips should help you purchase a house, but be aware, there are always little glitches and costs you don't expect. You don't have to want a home immediately to start the process. Getting all your finances in order will help you budget better and get you on a good financial road. Start by creating a filing system on your computer where you'll keep copies of W-2's, tax returns, canceled rent checks and even pay stubs. For extra protection, back it up and also keep a file for hard copy. Create a budget and live within it. Not only will it help you get your new home when you're ready, you'll also improve your overall finances.
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