The housing market has been bonkers lately, and you might be thinking that this is the right time for you to buy a house. Perhaps you’ve been living in a rental unit for years and are needing a bigger space to call yours. You’re seriously considering reaching out to a mortgage broker to see what options are available to you.
Hold up. There are a few things you need to know about qualifying for a mortgage with companies like District Lending before you set about applying for mortgage loans. You don’t want to risk your credit score or jeopardize your chances of getting accepted. Before you apply, read through these five tips on how to qualify for a home mortgage loan.
Get Your Credit Score in Order
The very first thing you should do is check your credit report. After all, this is the first thing most lenders do. Since you’re trying to prove that you’re credit-worthy to a lender, you should start regularly monitoring your credit report.
Check for accuracy, and check that no one else is accessing your credit, as that can damage your credit score. If there are any inaccuracies on your report with any of the three credit bureaus, dispute these with all three bureaus. If you see an account you didn’t open, you need to investigate it immediately since that could be a sign of identity fraud.
Do Your Research and Learn About Lenders
A home is a large, long-term financial commitment. That’s why it is important to get the best deal you can find. Look at all the mortgage brokers, loans, and rates before you sign on the dotted line. Settling for the first set of terms or the first rate you see might cause you to miss out on a better deal.
It is also smart to know how lenders function. They base their decision primarily on your credit score, so the loan rate and amount reflects their confidence in your ability to pay them back. The higher your credit score, the more likely it is you’ll get the rate and amount that you want.
Furthermore, you should check into prepayment penalties. Will you be penalized for paying the mortgage off early? While you can reach the end of your term sooner by doubling down on payments, there can be penalizations for doing so! Make sure you aren’t getting sucked into a loan that you won’t get punished for paying off too soon.
Gauge What You Can Reasonably Afford
This might sound like common sense, but you might be surprised how easily potential buyers get sucked into the idea of the ‘American dream’. While home ownership is a great goal to have, you need to find a rate that will let you come up with a downpayment you can afford.
You’re also going to want to think about how you’re going to finance your mortgage loan. An adjustable-rate mortgage allows a good deal of flexibility, but a fixed rate mortgage guarantees that your payments won’t increase over time.
Save for a Bigger Down Payment
Another part of being realistic is saving up for a larger down payment. The more you put down, the better terms you will get for your loan. Zero down payments are becoming a thing of the past, so the more you pay up front, the less you’ll pay each month.
Target Your Approach to Applying for Mortgages
One final piece of advice is to target your approach when it comes to applying for mortgages. Don’t apply to one, wait a few months, then apply to another, then wait and apply again a few months after that. These hard inquiries go onto your credit report and temporarily lower your credit score.
Instead, apply for a handful of mortgages within a two-week period since that will only count as one hard inquiry. In other words, it won’t drag your credit score down all that far.
While owning a home is something most of us want, it isn’t for everyone right this moment. That might make your prospects feel bleak, but this doesn’t mean you’ll never own a home. For some people, buying a home simply isn’t a smart move right now. Bide your time, do your research, build your credit, and keep your eye on the housing market – just like life, it will keep changing.