[et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Credit Preparation – Home Loan” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
Credit Preparation – Home Loan
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Credit Preparation – Home Loan: Home ownership is a dream come true for most Americans, a true milestone that is met with great pride and sense of accomplishment by the new owners. But getting to the closing day and getting the keys is a lot more complicated, cumbersome and potentially frustrating than it seems. What’s more is that there’s a lot that can go wrong during the house hunting process, making the ultimate goal of home ownership more pipe dream than reality in some cases.
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Perhaps the most important thing when it comes to home ownership is getting a mortgage. But getting a home loan also has the potential to be one of these aforementioned cumbersome and frustrating milestones along the way. With that said, here’s a look at seven important steps you’ll need to follow in getting a loan if your ultimate goal is home ownership:
Step 1: Check Your Credit Score
In order to get a home loan, you first have to qualify for it. And when it comes to home loans, your credit score is the lifeblood of whether or not you’ll get approved. For instance, credit scores below 620 will most likely not qualify for a home mortgage, as this falls in the “bad” to “average” range. Even if a lender will give you a loan with a credit score this low, you’ll likely be paying out the nose in interest, compared to if you had “good” or “excellent” credit standing. Your credit score leads us to our next step…
Step 2: Repair Your Credit Score
If your credit score is below 620, you’ve got some work to do before you can get approved for a mortgage. And even if your credit score is in “good” standing, improving it into that “excellent” category will only make you a stronger consumer and likely secure you a better interest rate. There’s a lot you can do to improve your credit score – and in a fairly short period of time too. The biggest thing you can do is to ensure that you’re paying your bills on time. Secondly, pay down credit cards so that you’re only using 30 percent or less of your total credit allotment. Additionally, it never hurts to carefully comb over your credit history to make sure it’s accurate. Recent reports state that there are discrepancies on the majority of people’s credit reports.
Step 3: Do Your Loan Homework
Got your credit score back in shape? Now it’s time to decide which loan is best for you. If you’ve got 20 percent to put down, a fixed-rate mortgage is probably best for you, as once you lock in your rate, you can rest assured it will never increase. An adjustable-rate mortgage might be in your best interest if you plan to move within a few years. And then there’s the matter of either a 15- or 30-year loan. You’ll pay less each month on a 30-year loan, but much more interest when compared to a 15-year loan. Don’t have 20 percent to put down? Consider an FHA loan, where you only have to put down as little as 3.5 percent, but pay other fees along the way.
Step 4: Get Pre-Approved
Pre-approvals are essentially tentative commitments from a lender based on how much of a home loan you can afford. We’d recommend you get this before beginning to house hunt, as it shows sellers and realtors that you’re a serious buyer, as well as how much you’ve been approved to borrow.
Step 5: Prep Your Paperwork
Back in the day, it was easy to get a home loan. Now, it’s a lot more tedious, so get ready to pull your tax returns, bank statements, pay stubs – and all in addition to your income, assets and debts. Lenders will be asking for this up until closing to make sure nothing suddenly changes.
Step 6: Lock in the Rate
If you like the interest rate a lender is offering, lock it in! Many will offer consumers the opportunity to lock in the rate for up to 45 or 60 days. Interest rates are really good right now, so this is definitely something that consumers should take advantage of when the time comes.
Step 7: Don’t Mess it Up!
The final step to getting a home loan is a stern reminder not to mess anything up! To be blunt, don’t do anything that’s going to mess up your credit profile, like take out a huge loan on a luxury sports car or up and quit your job. Don’t even do something as seemingly harmless as apply for a new credit card. Even something so miniscule could throw off the whole deal.
As we mentioned, getting a home loan can be tedious. But going into things with a clear understanding of what’s required and what you’ll need to do can make things run more smoothly and efficiently.