There are so many moving parts when preparing for homeownership. You may have looked at home insurance costs, closing costs, and down payments all in preparation for buying your first home. But getting that first mortgage is probably one of the biggest priorities. Here are some tips for securing a mortgage loan on your own and getting a deal you can live with.
Getting a Down Payment
You want to make sure you set aside as much money as possible for your first down payment. You can qualify for certain types of loans with no down payments. USDA loans tend to require no down payment while other loans require more than that. FHA loans tend to offer rates around 3.5 percent. You want to, at the least, try to set aside between 10 and 20 percent for a down payment if possible. The larger the down payment, the less money you will spend on your mortgage. It also impacts your LTV (loan-to-value) ratio. The more you put down, the better your LTV ratio, which should be above 85 percent.
Get Your Credit in Order
Your credit is the single most important factor considered by prospective lenders. Your lender will look at your capacity to repay the loan, as well as the length of your credit history. Your debt plays a major role in the evaluation phase. Your credit score determines how much you’ll pay in interest. Lower credit scores make you eligible for sub-prime, more expensive loans. Higher credit scores tend to be eligible for the most competitive interest rates. Poor credit scores fall below 600, while moderate scores are over 600. Good credit scores are well over 700. Your credit score will even be considered if later on down the line you decide to pursue VA financing rates.
Understand Your Credit
Your mortgage will be less expensive in the long run if you make sure you get your credit above 620, which is considered sub-prime. Improving your credit means understanding the components that make up your credit score. You want to make sure your debt-to-income ratio is around 36 percent. Your payment history accounts for 35 percent of your total credit score. Understanding these metrics will make it easier for you to qualify for a mortgage.
To qualify for a home, you will need 2 years of tax returns, ideally from the same employer. If the returns aren’t from the same employer, your jobs should be within the same industry. Self-employed people tend to have a difficult time in this area. Self-employed people must present 2 years of tax returns to qualify for lending. Lenders want to see if the person has consistent monthly income.
If you are preparing to buy your first home, there are some steps you can take to prepare for the purchase. In focusing on these items, you will approve your chances of getting approved for a home loan. You may even be able to save money on interest in focusing on these areas.