Applying for a home loan requires lots of preparation. First, you must gather all the required paperwork. This includes your most recent pay stubs, tax documents (past two years) and bank account statements (two to three months). Then, you have to submit the documents so the lender can determine if you’ve been approved for a home loan.
Getting approved for a home loan depends on a few factors. These include your down payment, income, credit score, debt to income ratio and work history. Thinking about completing an application for a mortgage? Now is the time to prepare for this exciting journey. Here are some things to remember when you get a home loan.
Due to inflation, interest rates for home loans are steadily increasing. In fact, the Federal Reserve is expected to raise interest rates a few more times by the end of the year. As interest rates increase, so will your monthly payments and the total amount that you will pay for the loan.
2. The Difference Between Prequalification And Preapproval
Prospective borrowers should know the difference between a prequalification and a preapproval letter. With a mortgage prequalification, lenders allow borrowers to self-report income and financial statements. This provides them with enough information to give you a ballpark estimate of what you can afford.
The process to get preapproved for a loan is stricter. Lenders will pull your credit report and verify your financial assets before giving you a preapproval letter. Real estate agents like to work with home buyers who have a verified preapproval letter. It lets them know that you can afford the houses that they are showing you.
FHA and conventional loans have different down payment requirements. The minimum amount that you’ll be required to put down for an FHA loan is 3.5% of the home’s purchase price. If you have a credit score below 580, you may be required to put down as much as 10% of the purchase price. Conventional loan down payments vary by lender. Some lenders require a down payment of at least 3% of the purchase price. If you put down less than 20% on a conventional loan, you will be required to pay private mortgage insurance.
Be prepared to pay thousands of dollars in fees when you purchase a house. Upfront costs include application fees, appraisal fees, home inspection fees, credit check fees, title insurance, loan origination, underwriting, transfer tax and two months of mortgage payments in reserve.
Your credit score is an important part of the loan process. Not only must you qualify for a home loan, but you must also have a high enough score to get a good interest rate. Typically, conventional loans require borrowers to have a 620 or higher to qualify for a home loan. The minimum FICO score for an FHA loan is 580.
As per the experts at SoFi, “You can begin to figure out the right mortgage loan for you by evaluating your down payment, interest rate, credit score, and monthly payments.” Buying a home is a significant transaction. That’s why it is essential that you learn as much as you can about the process before you sign for a loan.