Getting a Home Loan: House Buying Guide

Written by Posted On Monday, 10 June 2019 16:26

Getting a home loan can be easy as pie when you have your ducks in a row. So what's the low-down?

Comfort is such a relative term, but when it comes to buying a house, it means having enough money. Now, if you’re on the look for a property to purchase, chances are you need to borrow to fund it. It can be stressful, but with proper knowledge, getting a home loan becomes easy.


Here are your 7 easy steps to get approved for a house loan in 2019:


1.    Evaluate Your Financial Capacity

For first time homebuyers, you might have asked yourself ‘how much mortgage do I qualify for?’


While that’s an important question, you might need to redirect your attention to answering ‘how much house can you afford?’


Lenders consider many factors in determining how much you’re qualified to borrow. While they’re happier to lend clients with much bigger amounts, they’re also set to question if a client can pay for the amount.


Put yourself in the position of your potential lender and evaluate these 3 key factors in assessing home loan application:

·         Your income

·         Your credit history

·         Your debt-to-income ratio


When you’re applying for home loans, lenders will most likely ask you about your liabilities and projected down payment. That’s why you need to weigh your financial capacity before taking another step.


2.    Have Positive Credit History

Clean up your credit history by eliminating credit card balances and paying bills on time. If you’ve got unpaid loans, pay them down. Make sure to get a certificate of payment from that lending institution.


Credit scores have great impact with the pricing of your home loan. There’s no concrete answer of how much credit score you need to buy a house in 2019. Some experts say that with a score of 660, you can have smooth-sailing application for home loans.


People who have lower credit scores need to have larger down payments. If you have low credit score, your lender will suggest ways you can improve your score.


3.    Show Income Stability

Lenders often avoid risky clients. Putting your best foot forward by showing financial stability should be your priority. Maintain a stable cash flow and make sure to avoid new debt. Avoid major purchases like co-signing another loan or financing a new car.


Some lenders see quitting a lower-paying job to become self-employed as a red flag. They might delay your application or worse, stop your application. It’s crucial for you to stay with your employer as you go through the home buying process.


4.    Use Mortgage Calculators

You can search for mortgage calculators online and you’ll get hundreds of them. These free tools allow you to check if your current finances can handle your payment scheme. They can show you how much monthly mortgage payment you should pay under a different interest rate, home price, annual income scenarios and loan tenure.


5.    Level Up Your Savings Account

Yes, lenders get that you need funds for your dream home. But they also need to see consistency and deposits in your savings account. They need to find out if your savings can provide funds for a few months expenses (ask your lender for details).


The average down payment rate can range from 3.5 - 20% of your home price. If you wish to lower your mortgage balance, you should aim for higher down payments. Note that down payments aren’t the only expense you’ll need to cover. You also need to face home appraisals, inspections, insurance & tax prepayments, and title costs and many more. Your savings account should show that you can cover all these things.


6.    Prepare All the Required Documents

To get pre-approved for a mortgage, you need to cover these 5 things for your pre-approval process:


  • Proof of Income

Verify your source/s of income by preparing the following:


·         W-2 statements from the last two years

·         Recent pay stubs show income and year-to-date income

·         Proof of any additional income (alimony or bonuses)

·         Two most recent years of tax returns

  • Proof of Assets

Present investment account and bank account statements that prove you have enough funds. These funds should be enough cover for the down payment, closing costs and others.


Note that your down payment varies by loan type. Unless you put down 20% down payment, most home loans would require you to pay a mortgage insurance premium (MIP) or purchase private mortgage insurance (PMI).


  • Good Credit

If you’ve got a good credit score, you can avail lower monthly mortgage rates. But for first time home buyers with lower credit scores, there are other ways for you too.


Here’s how to get a home loan with bad credit/ low credit scores:


·         FHA Home Loans

The Federal Housing Administration created FHA Loans in 1934. Its aim was to increase home ownership in the USA. They insure mortgage loans so lenders would face less risks


With FHA loans, you don’t need 620 credit score. FHA lenders allow those with bad credit scores to have lower down payments than conventional lenders. It’s the best help for first time home buyers with low income.


FHA loan requirements (2019) include:

  • Credit Score greater than 580

  • Down payment (3.5%)

  • Debt-to-income ratio at less than 43%

  • Mortgage Insurance

·         USDA Home Loans

If you’re aiming for home loans with zero down payment, then check out USDA Home Loans. It’s available for real estate properties the USDA classified as rural. Lots of eligible areas are suburban.


Also known as USDA Guaranteed Loan Rural Development Loan Program, this housing loan allows families with low income have a chance at home buying.


·         VA Mortgages

For those with military experience, you should check out VA mortgage. This low income mortgage option requires zero down payment. Also, the seller can pay most of your closing costs. VA loans have more lenient requirements on credit score and debt ratio.


  • Employment Verification

Aside from wanting to see your pay stubs, your lender will likely call your employer. They need to verify if you’re still employed. If you’ve recently changed your jobs, your lender might also want to contact your previous employer. It’s crucial for them to see if you’ve got stable employment.


If you’re a self-employed borrower, you’ll need to prepare significant additional paperwork that show details about your business and income.


  • Other Types of Documentation

Your lender will also need a copy of the following:

·         Your driver's license

·         Your Social Security number (SSN)

·         Your signature (to allow the lender to pull a credit report)

7.    Respond Promptly To Your Lender

After submitting your home loan application, you need to keep you communication lines open. Your lender might need additional requirements or information from you. Don’t wait too long to respond or else they might delay or even blow up your application.


The Bottomline

For you to save your time and effort, make sure to consult with your prospect lender before starting with your home buying process. Create pdf files for those important documents and gather other necessary paperwork before your pre-approval appointment. Getting a home loan should happen first even before you go house hunting.

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John Cunningham

John Cunningham and eXp Realty in Phoenix Arizona provide professional real estate services across the valley. His unique systems and approach to the market make John completely different than all other agents in the valley.

If you're looking to make sure that you end in the winner's circle when you make your next move call John at (602) 558-3843.

To find out more about him see John's Phoenix Real Estate Agent profile.

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