For a while now, you’ve been thinking of moving out of your small apartment to buy your first home. The problem is paying for it.
Unless you have a lot of money in your pocket, you’re not going to be able to produce that kind of cash. That means you’re going to have to take out a loan.
A good majority of people that put in for one get turned down. It leaves you asking questions like how do I get a mortgage? Do I even stand a chance?
You do, but you’re going to have to strengthen your application a bit. We can walk you through the process. Keep reading to learn how you can get a mortgage so you can buy your dream home!
Check Your Finances
Buying a house isn’t cheap. You’re going to need to have your financial ducks in a row or you’re not going to get approved for a mortgage. The loan company won’t trust you enough to move forward with the process.
They want to make sure that they’re going to get their money back, so they’re really going to dig into your money history. The three main things that they’re going to look at are your income, your assets, and your credit.
There’s no set dollar amount required to get a loan as far as your income goes. The loan company only needs to know that you can pay your bills each month.
They’re going to dig into your employment history and your overall household income. They’ll also consider other forms of income such as child support.
In times of financial crisis, it may be hard for you to pay for your mortgage. That is unless you have some savings in the bank. If you have some extra cushion, it will strengthen your application quite a bit.
The mortgage loan broker will take a look at any account that you withdrawal money from such as your savings account and retirement fund. You want to have at least 6 months’ worth of mortgage payments under your belt.
This won’t only make you look better to the lenders, but it will also help you with the downpayment and any closing fees involved after you buy the house.
Your credit score is the largest contributing factor. If you have a high score, it tells lenders that you have the habit of paying all your bills on time.
You’ll need a credit score of at least 620 or 580 to be able to qualify. Of course, having a higher one will reduce your interest rate and net you a lower downpayment.
If your credit score is on the lower side, we recommend taking some time to improve it before you start looking around for a loan. The first step is to review your credit report.
Requesting to look at your report won’t hurt your credit score, and it’s free. Scan over the report for errors. If you spot any, you can dispute them and get them cleaned off your record.
Set up payment reminders, so you get your bills paid on time. Doing so will help your score shoot up pretty fast. If you can manage it, try paying off your debt twice a month instead of only once.
Be a little careful about how often you apply for new credit. It will increase your limit, which will hurt your score. These are only a few tips to keep in mind.
Choose the Right Type of Mortgage Loan
Once you have all your finances ready to go, it’s time to start looking at your mortgage options. There’s plenty of them for you to choose from that will work depending on your situation.
Conventional loans aren’t insured by the government, so the requirements to get one are pretty strict. You’re going to have to have an excellent credit score and a hefty downpayment to be able to qualify.
You can get one of these loans through your bank or go through an independent lender.
If you don’t have the best credit in the world, you’ll still be able to get a mortgage, but you’re going to have to go with a government-insured loan, such as the HECM. The credit requirements aren’t near as stringent.
You’ll also have some breathing room in terms of downpayment, and these loans are available through most places where you can get a mortgage. You can look into hard money loans if you have poor credit as well.
Once a house gets past a certain price point, the lenders aren’t going to trust it enough to give you one of the traditional loans listed above. If you have the big bucks and want to get one of these more expensive houses, you’re going to have to get a jumbo loan.
The last type of mortgage is a VA loan. They’re put in place by the Department of Veterans affairs. They are only available to veterans or those who are in active service.
If you’re the spouse of a veteran, you’ll also qualify. Oftentimes these loans come with no downpayment.
Finding a Lender
Now that you know more about your options, you can begin searching for a lender. You don’t have to go with the first company that gives you a good deal. It’s important to do a little shopping around.
Getting a good interest rate is only one important aspect of getting a loan. You’ve got to read the fine print to learn what you’re working with as far as fees and repayment conditions.
A good way to go about this is to talk to your friends and family members that have been in your shoes before. They’ll be able to give you information on their lenders.
You should then do a little research to find out what their minimum requirements are. You may be able to get prequalified for a loan.
Prepare the Right Documentation
Before you can head to the loan office, you’ll need to prepare the right documentation. You’re going to need proof of income, proof of assets, and any credit paperwork.
Proof of Income
The first thing that you’ll need to find is a few documents that show proof of income. You can use your old W2s, your federal tax forms, or legal paperwork that shows you’re receiving child support.
Proof of Assets
The lender may require you to show proof of assets. You can supply 60 days’ worth of your bank statements. If you have a retirement fund, you can show a statement from that account.
The last thing you’ll need is your credit documentation. You’ll have to sign a waiver giving the lender permission to get a peek at your credit report. They can use this to look for anything that will disqualify you, such as a foreclosure.
If you have a foreclosure on your account, you’ll have to wait a year or two before you put in another application. Let’s say that you have a few missed credit card payments on your account.
If these missed payments were due to a medical emergency, you may be able to save yourself by providing the lender with a copy of your hospital bills. This shows that the stain on your record is due to circumstances that were out of your control.
Get a Preapproval
If you can, do what you can to get a preapproval. It will allow you to make a home offer outright, which will strengthen your buying power with the seller.
It will also give you a good idea of what you’re looking at as far as mortgage payments go. By having solid numbers that you can crunch, you can take out a calculator and determine if you’ll be able to afford your payments.
Normally, you don’t want to apply for too many credit-related things at once, but in this case, go for it. Get a preapproval from at least three different lenders. As long as you get all the preapprovals back within a certain timeframe, it won’t drag your credit score down too much.
Make sure that you get a preapproval and not a prequalification. Approvals are more accurate as far as the numbers go.
Submit Your Application
One thing to keep in mind is that just because you get a preapproval, that doesn’t mean you’ll be able to get a loan. You’ll still have to put in an application.
You’ll need to submit some of those financial documents that we talked about before. Depending on the lender, they may request some additional paperwork.
This is especially true if you’re self-employed. The bank will need some documentation proving that you’re financially stable enough to pay your mortgage.
After a few days, the lender will decide if they want to work with you or not. They’ll give you details letting you know how much the payments will be and what your interest rate is. If you like the numbers that they give you, go ahead with the underwriting process.
Play the Waiting Game
You’re not out of the woods yet. You have your mortgage, but the lender has to make sure that they don’t give you more money than you need for the house. To do this, they’ll use the information that you’ve given them so far to order an appraisal.
An appraisal will tell the lender what the market value of the home is. If the value is too high, they may not feel safe giving you the loan. The sale will fall through, and you’ll have to start looking around for a cheaper place to live.
If you are dead set on the home, order an inspection. If the inspector finds defects, you may be able to negotiate a lower price for the home.
While the underwriting process is still going on, don’t make any huge financial changes to your life. Switching jobs or taking on new debts may cause the lender to rethink their approval.
Prepare for the Closing Process
The worst is over and the closing process has begun. There are a few things that you’ll need to do while the closing is going on.
First of all, you’re going to need homeowner’s insurance. Most lenders require you to open a policy. You should also get a title insurance policy.
Take one last walkthrough of the home to make sure that the seller did the repairs that you requested. If everything is in order, you’ll proceed with the closing fees.
Buy Your Home
Now that you’ve paid your fees, the closing can proceed. Take the time to ask any questions regarding your mortgage. You want to be sure that you understand all the terms and conditions before you move on.
If something doesn’t seem right, this is your last chance to back out of the deal. Those present at the closing will be the seller, the seller’s agent, your real estate agent, your lawyer, the seller’s lawyer, and the mortgage broker.
How do I get a Mortgage and Get the House of My Dreams?
Are you ready to move out of your small one-bedroom apartment and purchase your dream home? Unless you have a lot of money in your bank account, you’re not going to be able to hand over the payment for the house in cash.
You’re going to need to take out a loan. With all the requirements in place, you may be left wondering how do I get a mortgage? It’s not impossible, but you will need to get all your financial ducks in a row first.
Use these tips to get your documents ready and go after that approval! Now that you have your home, it’s time to make it your own. Visit the Lifestyle section of our blog for all the latest decor tips.