Home Loans
Applying for a Home Loan
Getting a home loan can be a stressful and frustrating process if you don’t cover all your bases. By making sure your credit score is as high as possible, you’ve taken the first step. Now, there are a several things you should take into consideration before applying for your home loan.
Lenders have tightened their requirements in the past couple years because of the recessed economy and because of the past mistakes lenders have made in granting home loans to people who really couldn’t afford them. For this reason, it may be worth your time to shop around and find a bank that is reputable, but will work with you if your credit score is less than perfect. Another reason it’s important to find a reputable mortgage company is to avoid being taken advantage of the way many have been over the past decade.
Never get a home loan that requires balloon payments or variable interest rates. These situations can cause problems that might make it difficult for you to pay your mortgage or require you to come up with a large amount of money to keep your home. These are the practices that have caused many of the foreclosures for well-meaning home buyers over the few years.
To get a good interest rate, you really need a credit score of 700 or more. Studies have shown that the average consumer with a credit score of 540 pays over $5000 more in interest than the average consumer with a credit score of 720 each year. So it’s a good idea to make sure your credit score is as high as it can be before applying for a home loan.
It is important that you have verifiable proof of income for at least 2 years in order to get a mortgage approved. Be prepared to provide this information upon applying for your home loan.
The more money you put down on the home, the more likely you are to be approved for your home loan and the lower your interest rate may be. If at all possible try to put as much as 20% down on the home you are buying. This will demonstrate a much lower risk to lenders and get you a better rate on your mortgage. You can certainly buy a home with little or no money down, but this is becoming more and more difficult in the current economy to do so.
Be aware of how much you can afford to pay for a home. If you can comfortably afford a home that is $200,000, but the lender approves you for up to $350,000, this does not mean you need to run out an find a more expensive house. Be wise about your home purchase decision, as this is one of the biggest financial responsibilities you’ll have and the smarter you are about it, the better off you’ll be in the long run.