There’s a lot involved in the mortgage process and what you need to know to get your home loan approved. The home loan process is only part of the equation though. It’s important to take certain steps before the kicking off the mortgage process.
Pay your bills on time gives you a good credit history. Late payments on your credit reports can negatively affect your credit score, which can play a significant role in whether you get approved for financing or not. Learn more about how your credit score can affect the rate and conditions you receive on a home loan.
Be mindful of changing jobs when you’re preparing to purchase a home. Lenders want to see stability and continuity in your employment history. Lenders will look at your employment history to make sure you have enough—and will likely continue to have—income to repay the loan. Be prepared for the lender to ask for more documentation to prove that your work history and income will be sufficient for you to handle a home loan.
Research the best home loan solution for your needs. Take time to educate yourself on the ins and outs of fixed rate, adjustable rate, and FHA and VA home loans. It is also a good idea to learn about all the fees that may be involved with each home loan type and what kind of credit is needed for each.
Determine what you can afford. Find out what the current average mortgage rates are. Also keep in mind that you’ll need to pay for homeowner’s insurance and local property taxes in addition to your monthly mortgage payment.
Understand Your Current Credit Standing
When applying for a home loan, most lenders will look at your FICO Scores. Scores help lenders determine your credit risk and are used to determine the interest rate charge on the home loan.
You have three FICO scores; one from each of the three major credit bureaus— Equifax, Experian, and Transunion. The scores offered by these credit reporting agencies is based on the information found on your credit report and is during your home loan process.
Remember, changes to your credit reports and credit scores can derail the home loan process at any time. The lender may check your credit score just hours before your loan is finalized. It’s wise to stay on top of your credit. You can check your Experian score for free on credit.com. You might also consider a service to monitor all three of your credit reports bureau to catch any major changes as quickly as possible.
If you need to improve your credit score before applying for a home loan, aim to:
Keep your credit balances low
Set up payment reminders, to avoid the risk of late payments
Reduce your debt as much as you can by paying off accounts
Dispute any errors you find on your credit report