Nearly everyone’s biggest dream is to become a homeowner. As a homeowner, you have a chance to build equity, you get a sense of security, home stability, and you enjoy tax benefits, not to forget that you will have more control over the costs.

While some choose to build their homes from scratch, the majority opt to purchase built and ready-to-move-in homes. The idea comes with a range of benefits, including saving costs and the convenience of moving to your new home right away.

Nonetheless, as exciting as it can get, you should not let interest rates alone lure you into making hasty home purchase decisions. Here are seven things you should know to help you acquire a loan.

1. What’s Your Budget?

The first step before embarking on your search for a house loan is to set a budget. Many aspects come into play when setting a budget, such as the house types, size, and location.

Ensure that you can comfortably afford to raise the recommended down payment amount and repay the loan on time.

Note that the house buying price alone does not account for the required amount. It would help to put other expenses such as the homeowners association fee and home maintenance costs into consideration.

Therefore, just because you have saved enough down payment and are eligible for a mortgage does not mean that you are fit to buy a house.

2. Your Credit Score Determines Mortgage Interest Rates

The trick to qualifying for a mortgage at affordable rates is to work on your credit score. The loan lender considers this to determine if you are capable of meeting payment terms. In return, you can borrow a high amount at lower mortgage rates.

The recommended credit score when applying for a home loan is between 580 and 620. You can improve your score by paying loans and loading your credit card on time.

Check your credit score at least 12 months before applying for a loan. This way, you will have enough time to improve the score if necessary. While at it, double-check to ensure there are no errors that could negatively affect your credit score.

3. Your Debt-to-Income Ratio Dictates Your Home Loan Eligibility

Besides credit score, mortgage lenders consider your debt-to-income ratio to establish if you qualify for a loan. Ideally, the debt-to-income ratio is the portion of your gross income that caters to debts every month.

Most lenders will only grant you the loan if your DTI is not more than 43%. The reason being, if most of your monthly gross income goes to debt repayment, you may not have enough money left to repay your mortgage. Therefore, lenders will see you as a threat.

If you have a higher DTI than the recommended percentage, you must have other compensating factors such as a large cash reserve or attractive credit score. Otherwise, it would be best if you start paying off your debts as early as now to improve your DTI before applying for a mortgage.

4. How Much Do You Have For Down Payment?

You need to prove to lenders that, indeed, you are serious about purchasing a home. And there is no better way to do so than by saving a large amount for the down payment.

No lender will grant you a loan if you have nothing to show your financial capabilities. You should save at least 3% to 5% of the mortgage and at least 3.5% if you wish to apply for an FHA loan.

Suppose you want to borrow a 210,000 mortgage. It means that you should have at least $7000 to $11,000 as down payment. If you have no downpayment, you may be required to pay mortgage insurance to protect the lender if you fail to meet the loan payment terms.

5. Shop for the Best Home Loan

Now that you have your credit score and DTI in order and have saved enough for the down payment, you can commence on the search for a suitable mortgage program.

Do not settle for the first option that you come across. It would be best if you shopped with at least five mortgage lenders until you find one with affordable mortgage interest rates.

Click for mortgage rates and how fixed rates work.

Besides the interest rates, pay attention to the loan payment terms. Discuss the different home loan options with the lender, then select the one that suits you most.

Take your time to educate yourself about the different mortgage products. For instance, if you want a mortgage with the lowest rates, learn the pros and cons of this product. Similarly, understand the benefits and downsides of choosing a home loan with a short or long payment period.

6. Mortgage Pre-Approval

Mortgage pre-approval is your go-ahead signal to start shopping for your dream house. If you are pre-approved, you will have an idea of the type of home to look for and the budget.

Most home sellers will only agree to work with you if you are already pre-approved. This is because, with pre-approval, there are high chances that you will end up purchasing the home, as opposed to unapproved buyers who are likely to bail out along the way.

Gather all the necessary documents such as proof of your income, bank statements, credit score, and other supporting documents for a fast pre-approval process.

7. Hire a Realtor

Hiring a real estate agent is critical, especially for first-time homebuyers. The expert knows the ins and outs of the real estate market. The real estate agent will offer professional insights into the best mortgage type and help you locate the best lender.

Furthermore, you can count on a real estate agent to help you shop for the best mortgage rates. Look for an experienced and credible realtor near you, based on reviews and recommendations.

Buy a Home for the Right Reasons and at the Right Time

Buying a home is a huge investment, and it will help if you don’t make rash decisions. Don’t rush to borrow a home loan simply because the interest rates are appealing. Consider other factors such as the down payment, home maintenance costs, and the availability of high-value homes.

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