Applying for a loan can be scary and stressful, but here are some tips that will make mortgage lending go smoothly and quickly.
1. Check Your Credit Report
It is easy to get a copy of your credit report, and once you do, you should make sure that there are no errors. Update your address, phone number, and accounts.
2. Stick To What You Can Afford
You need to manage your debt-to-income or DTI, which stands for the monthly payments you have to make in relation to your monthly income. When applying for a mortgage, you are allowed a maximum DTI of 41%, but it is good to aim for something no higher than 36%. This is important because when you are stretched too thin, you might miss mortgage payments in case of emergencies.
3. Go For 20% Down Payment
If you can pay 20% down payment, you will no longer be required to get private mortgage insurance (PMI).
4. Aim For A Good Credit Score
You should not stress yourself if your credit score is not perfect, as you can still qualify for a loan with lower credit scores. A 620 or higher is what conventional mortgages look for but FHA loans are available for those who have at least 580. The key is to try to improve your credit score by paying off your credit card balance, ideally keeping it below 15% of the limit.
5. You Can Also Opt For No Down Payment Loans
Government mortgage programs allow you to put down less than 5% down payment, with FHA loans requiring only 3.5% so long as you have a credit score of 580. On the other hand, USDA and VA loans do not require any down payment at all.
6. Have Extra Cash As Reserve
It is advisable to have about 2 months worth of mortgage payments saved up. Lenders will not look kindly at someone who is using up all his savings just to qualify. The more savings you have, the better chances you have of getting your mortgage approved. In fact, it can even make up for a lower credit score.
7. Get Quotes From Several Mortgage Lenders
In the same way you look at different providers for many services, you will want to shop around for different loan offers. You can then compare and even negotiate for a better deal. Once you do, you should choose the one that is most advantageous to you, even if it means you end up paying more if you do not stretch yourself too thin.
8. Prepare Your Documents
You will need to submit a lot of documents for the application process, so you should prepare them all beforehand. You will need paycheck stubs, W2s from your employers, tax returns, bank statements, list of debts and assets, credit report, and many more.
By following these steps, you can make your loan application hassle-free and quick. And before you know it, you are on your way to purchasing your new home.