Getting approved for a home loan might seem like a daunting task, but in reality, it can actually be a pretty simple and straightforward process. The following tips will help you gain a better understanding of just how easy it can be to get your home loan approved.
Keep Yourself Credit-Worthy
Your home loan approval begins with your credit. It can impact your qualification and the interest rate of your loan. So, it’s critical to review your credit report to make sure everything is correct. If it’s not accurate, you should report any corrections to the credit bureaus immediately. As far as your current credit activity, lenders will be looking for you to continue to make payments on a timely basis and pay down your debts as much as possible.
Have Your Documentation Ready
If you have a traditional income, the lender will ask you to gather your proof of income such as recent paystubs, bank statements and up to 2 years of tax returns. For the self-employed or those with fluctuating or lump sum incomes, you’ll need to provide the lender with two years of personal tax returns and two years of business tax returns. You can provide your business license or a letter from your CPA on their letterhead confirming that they handle your business finances and you’ve been self-employed for at least two years.
Make the Down Payment
One of the biggest misconceptions in the mortgage industry is that a 20% down payment is required to buy a home. Nothing could be further from the truth. FHA loans, for instance, only require a 3.5% down payment. Conventional loans (with Private Mortgage Insurance) require a 3% down payment. VA and USDA loans offer 100% financing with no money down. Using a gift down payment is yet another option.
Is it in the Budget?
It’s important to know what you can afford – and what you can’t. In addition to potential mortgage payments, you should factor in closing costs, property taxes, mortgage insurance, homeowner’s insurance and living expenses. To measure whether a borrower can repay a loan in a timely fashion, lenders typically use a debt-to-income ratio (your monthly debt payments divided by your gross income) to compare what you owe vs. what you earn and if you’re overburdened by debt. Knowing this, you should avoid new debt and pay down existing debt to improve your chances for loan approval.
Stay in Touch
It may seem obvious but staying in touch with your lender throughout the loan process can help reduce the likelihood of complications down the line. For instance, if your lender needs a document or has a question, you can resolve the issue now rather than having to sort it out later.
Stay at Your Job and Don’t Overspend
Once your loan documentation has been submitted for approval, it’s essential that you stay in your job and maintain a steady income. Failure to do so could affect your loan qualification and your loan approval amount. Also, avoid making any large purchases (other than your home) or adding to your credit card balances. This could significantly alter your financial standing for the loan.
Get a Good Offer
It’s important to find a lender who will not just get you a competitive rate, but who has a reliable track record to assist you every step of the way throughout the homebuying journey. And when you’re ready to start that journey, contact New American Funding.
Don’t forget to use our mortgage calculator to estimate your monthly payments.