Finally being ready to buy your dream home can be a great feeling. You finally have a budget where you can afford a home, and the next step is to find a mortgage company that will give you home loan.
However, what should you do to prepare for this process so that you can get approved for a home loan AND receive the best interest rate on your future mortgage?
Below are five areas that impact whether or not you will be approved for a home loan.
Your credit score plays a big role into whether or not you will be approved for a home loan, and it will also impact what interest rate the bank will give you for your mortgage. Usually anything below a 650 means that you will not get approved for a mortgage at all, but there may be a few cases where it has happened.
Before applying for a mortgage pre approval, I would always try as hard as you can to improve your credit score. It is not too hard to do, especially if you think you are ready to buy a home because hopefully your financials are straightened out.
2. Whether you pay your bills on time or not.
One thing all mortgage officers will look at is whether or not you pay your bills on time. Most companies will report this to the credit bureaus, and some rental companies do as well, so this is something that can usually be found on your credit report.
Always make sure to pay your bills on time. If you do not, then mortgage banks might assume that you don’t put paying bills as a top priority and won’t be as willing to give you a loan.
3. How long you’ve been working at your job.
If you haven’t been working at your current job for very long, this may impact whether or not you are approved for a loan. Most mortgage companies want to see a stable job of at least six months, and if you are self-employed then mortgage companies usually want to see two years.
If they see less than this but still decide to approve you for a home loan, then they will usually charge you a higher interest rate on your home loan to make up for the unstable job aspect of your mortgage application.
4. Your income.
The second to last area that impacts whether or not you will be approved for a home loan that we will be discussing today is your income. Your income plays a factor because if it’s not high enough, then there might not be any homes in the area that you can afford. This is because mortgage banks usually want to see an income of at least 3 or 3.5 times what the expected mortgage payment will be, so that they know you can afford the mortgage payment and other expenses in life.
5. Your debt.
Your debt also comes into play when applying for a mortgage. If you have too much debt and not enough income, then mortgage companies may not want to loan money to you because they are unsure about what will happen if you can no longer afford all of your debt payments.
What else do you think impacts whether or not you will be approved for a home loan?