Things to know before applying for a home loan

Are you planning on buying your first house or apartment? Congratulations! You are on your path to building your empire. Before applying for your loan, there are some important things to know that will help you prepare.

Know your credit score and what’s affecting it: Lenders will ask about your credit score; therefore it’s very important that you know it before applying for a loan. Be sure to look for any inaccuracies that you can rectify before they pull your report. They will take a look at your personal credit history and conduct their risk analysis before giving you a loan. Also important to know are the items that could affect your credit score. Your credit score is affected by your payment history, credit cards, other loans, and overdrafts. Even mobile phone and utility payments could play a part in your score.

Pre-Qualification vs Pre-approval: Pre-qualification gives you an idea of how much house you can afford by telling you what you likely qualify for. It also helps understand your mortgage options, and lets you shop around for a lender. Pre-approval is a more complete and formalized process where you complete a mortgage application and the lender takes a closer look at your finances. Once you have that pre-approval it means the lender has formally agreed to lend you a specific amount of money. This is extremely important when looking for a home because most sellers will not take buyers seriously without a pre-approval in hand.

Proof of Income: Steady income is crucial for getting a mortgage; therefore you will have to prove that you have it. Gather the last 2 months’ worth of paystubs and the last 2 years’ tax returns. Lenders also want to see that you have been with the same company for at least 2 years. Borrowers with longevity receive more favorable considerations than those who have hopped from job to job. Your lender may also ask for your most recent bank statements for income history.

Have a strategy for your downpayment: The average downpayment in the US is 20%, and the minimum is 3.5%. The bigger the amount you can put down, the better it will be for you. Mortgage lenders are cautious; therefore putting down less than 20 % will result in having to purchase insurance that will protect the lender. A PMI is a personal mortgage insurance. Outweigh your options when making this decision. The PMI could raise your monthly cost, but the lower down payment may increase your chance of getting your dream house.