Getting a home is a goal that many people have in their lives. While it would be nice if everyone had enough cash on hand to pay for a home, most people don’t. As a result, most of us rely on a home loan or mortgage in order to get a home.
Unfortunately, it isn’t guaranteed that everyone will qualify for a home loan. Thankfully, there are some things you can do to give yourself the best chance. With that in mind, let’s go over a few helpful tips to assist you in qualifying for a home loan.
Get Your Credit in a Good Place
One of the most important factors in qualifying for a home loan is your credit. The better your credit, the less risky you are in the eyes of lenders and the easier (and more affordable), it will be to get a mortgage.
As a result, you want to get your credit in a good place before deciding to apply for a mortgage. This can be done by making your payments on time, using credit responsibly, keeping old credit accounts open, and keeping utilization low.
You should also be on the lookout for things that could be hurting your score. Be sure to look at your credit report and look for things like mistakes or penalties for late payments. These late payments can have a large impact on your credit score, so be sure to deal with them.
Once your credit is better, you should find it easier to get a home loan and land a better interest rate, too. While a small difference in your interest rate might not seem like a lot, even a single percentage point can represent thousands of dollars over the lifetime of your mortgage.
Take Care of Your Debt
Taking care of your debt before trying to get a home loan is also a good idea. Lenders generally want to see a relatively low debt-to-income ratio when evaluating potential borrowers. This is essentially how much of your income is going to debt. If you are already spending a ton of your income on debts each month already, many lenders will be a little worried about also adding a mortgage to that amount.
So be sure to take down this debt a little if you find yourself having a lot. Be overly aggressive in paying it down to a normal or acceptable amount before applying for a home loan. While you don’t need no debt in order to get a mortgage, you generally want to ensure the debt you do have is easily manageable and won’t overwhelm you.
Have an Adequate Down Payment
Another way to help your chances of getting a home loan is having a solid down payment. Oftentimes, the higher your down payment, the less you need to borrow and the more comfortable a lender will be. Having a large down payment shows you are taking this seriously and want to reduce your debt over time, and means the lender is on the hook for less if you default on your mortgage.
As far as how large your down payment should be, that depends. It can be as little as 5% in many cases, but putting a 20% down payment is often recommended as you will need to borrow less, and can also avoid mortgage insurance.
Saving for a down payment isn’t always easy, but there are some things you can do to help. This includes automatically saving a portion of your paycheck, reducing your expenses, picking up extra hours, or even holding a garage sale.
We hope that these tips and pieces of information are able to help you qualify for a home loan to purchase the house of your dreams.