With the rising mortgage interest rates, many home buyers are reluctant to purchase houses. But buying a home strictly out of your bank savings is a luxury that only a few get to enjoy. Unless you’re the likes of Mark, Bill, Warren, and The Donald, a mortgage is probably the easiest way you can buy your dream home faster. But then again, it comes with a price. You have to deal with the rates as they are the hotter the economy gets.
Well, it shouldn't be that much of a challenging affair for you if you have a clue about what you’re up against. Applying for a loan may seem easy, but before you drop your mortgage application, there are a few crucial things you’ll want to consider to be on the greener side of the divide. Forgive the seemingly long introduction; here are some things you need to know before applying for a home loan.
Know Your Credit Score
Make no mistake about it, one of the things lenders check before deciding whether or not you’re eligible for a loan is your credit score. By checking this, they’re able to determine the chances of you paying back the mortgage. Before filling the application, it is important to know your credit score. Your credit card company or your bank should be able to allow you to check your credit score. There are also institutions known as credit reference bureaus, which mostly serve as a center point for all credit information.
As long as you have a bank account, credit card, or existing loan, the authority credit reference bureau should have your details. CRBs can provide you with not just your credit score details, but a full credit report that includes lots of more helpful information and insights. If you ever paid a loan late, defaulted payment (delinquencies), declared bankruptcy, and so on and so forth, this should appear on your credit report. Nonetheless, credit score is the most important thing. The higher your credit score is, the higher the chances that your loan application will be successful.
However, there are a number of things you can do to raise a low credit score or keep it high. First, ensure your credit report has no errors (you may have paid off a loan but it still indicates that you defaulted payment). Secondly, you can consider paying off any loan balances you owe out. This is lenders also consider the amount of your gross income going towards repaying loans. Remember that when giving you a loan, it’s a risk they’re taking, meaning that they need to be sure that you can repay their money.
Avoid Making Big Purchases
Buying an expensive car or another costly asset shortly prior to or in the midst of your home loan application can lead to a declined mortgage. Remember, you want to convince the lender that you’ll be able to pay back their money. You don’t want to appear as if you’re a big spender to them. Lenders lack faith in big spenders, unless, of course, they have really huge bank account balances. They tend to monitor your expenditure. As a matter of fact, bankers and lenders do something called credit analysis before deciding on whether to award or decline a loan. If you spend more than is coming in within a particular period of time, your chances of getting a home loan may go down. Therefore, whether you want to change your furniture or buy new appliances for your new home, consider waiting until you’ve purchased the house.
Refrain from Switching Of Jobs
A new job is always exciting, but you should be careful that it doesn’t disqualify you from getting the loan. That job or profession that you’ve been in for several years can act as a solid source of income, which bankers love very much. It may not act as collateral, but it can at least show them that your income is assured. Avoid switching of jobs weeks before meeting with the lender, or else, you may not even have the pay slip to convince them of how you are going to repay the loan.
Do Your Research on Lenders
It goes without saying, different lenders charge different interests. Be sure to conduct proper research and compare the ones available in your area before settling on one of them. And in addition to the interest rates, other factors you’ll want to consider include the loan term (duration of payment), the down payment amount needed, requirements, processing fees, late payment fees, and involved penalties, etc. Just like the alphabet, the lender’s experience, reputation, and customer service quality are never to be forgotten.
Prepare Your Paperwork
No lender will lend you money without seeing your paperwork. Organize your bank statements, payslips, tax returns, credit card details, and any other relevant documents. In most cases, lenders will tell you the documents they need from you. To whether or not you’re eligible for a home loan, you must present your paperwork to the lender for scrutiny. Ensure that you have everything in order before applying for the loan to prevent disappointments.
However, it’s even more important to speak to a professional before taking the big step. Once you have information and you are organized, getting and repaying the loan will not be challenging.
But what about if you’re at your worst financial times and you can’t raise the down payment amount required for your home loan? What if you get your home loan, but you realize you need more cash to keep you or your business going? In such a case, you may want to visit a lender that provides softer, sometimes unsecured loans such as title loans. Some companies will even consider clients who have bad credit.