Tips for Qualifying for a Home Loan
If you’re searching for a new home, you’re not alone! Many people are seeking to purchase their first residence or upgrade from their current home to a new one.
However, it’s important to realize that qualifying for a home loan is not the same as obtaining a credit card or buying a car. You’ll need to have all of your financial ducks in a row to qualify for a mortgage. Here is our handy list of tips that you can use when preparing to purchase a new house:
Clean Up Your Credit
Prior to purchasing a new home, you’ll want to clean up your credit. To do this, first, pull your credit report through the Annual Credit Report program. This service is entirely free on a yearly basis. Make sure to ask for your credit report from each of the three credit reporting companies, including TransUnion, Equifax, and Experian.
Next, review your reports for any discrepancies. If there are any, you can notify the credit reporting agency to have them removed. Finally, ensure your payments are made on time and pay off any collections.
If any of your cards are near their limits, try to pay down the balances to 40% of your credit allowance. This payment helps to improve your credit score, which will impact the type of mortgage and interest rate that you qualify for.
Save Your Money
To qualify for a loan, you’ll need to save your money for a down payment. The amount of the down payment required will vary by the type of loan that you obtain but may be anywhere from 5% to 20% of the home’s total purchase price. This percentage can be a significant amount depending on the home you are seeking to buy.
You’ll want to have enough saved up for the down payment, but you don’t want to drain your savings either. Aim to have enough in the bank for your down payment, plus a few months of living expenses should anything unexpected occur.
Have an Understanding of What You Can Afford
When purchasing a home, you don’t want to overextend yourself in the buying process. People often get caught up in the features of their dream home and decide to go over their purchase price limit. This excess can result in a mortgage payment that you struggle to meet each month.
Instead, seek to purchase a home that is within your financial boundaries. The 28% rule is often cited as the amount that can be reasonably applied to a monthly mortgage. This rule means that your monthly mortgage payment should be no more than 28% of your gross household income.
While the 28% rule is the standard, some people may not be able to apply 28% of their income to a mortgage. It’s best to be conservative — you can always pay more towards your mortgage each month to build up your equity for the future.
Seeking to Buy a Home in the Wooster, OH, Area?
If you’re ready to purchase a home in Ohio, you’ll need the assistance of an experienced mortgage loan provider. At Primary Residential Mortgage, Inc., you can expect to receive experienced support during the homebuying process. Contact us to learn more today!
Have a Question or Ready to Apply?
We’d love to hear from you!
Spring break has many Ohioans considering whether they’d benefit from a vacation home (perhaps somewhere warmer!). Before you sign on the dotted line for your new retreat, consider the following factors in your decision: Purpose: Think about how you plan to use the vacation home. Will you use it as a rental property, or will […]
A reverse mortgage is a type of loan that allows a homeowner to borrow from a lender using their home as security. (In other words, a borrower is withdrawing part of their equity in their home.) While the homeowner remains responsible for property taxes, insurance, and upkeep costs of the home, they do not have […]
Why did your mortgage payment go up? Your mortgage payment is not just a random number on a piece of paper. It’s a complex formula with many factors and variables. If you haven’t delved into the details of your mortgage payments, let’s take a closer look at where your money is allocated each month. To […]