You need to think about many things before applying for a housing loan if you want your application to be successful. So, make sure you check off the items on the following ultimate checklist.
1. Shop Around for a Loan with the Best Rates
Before you apply for a mortgage, it is imperative you shop around. By comparing different lenders, you can find the best rates and the best terms and conditions for your needs. For up-to-date current mortgage rates from a multitude of different lenders, read more here.
2. The Documents You Need
You must make sure you have all the documents that could be required by the lender. First off, you need to provide documentation to prove your income. As an employed person, you may need W-2 forms from the last one to two years or pay stubs from the last thirty days in addition to other documents. If you are self-employed, the majority of lenders need you to have worked in the same industry for at least two years. Documents you may need include two years’ worth of federal tax returns, a cash-flow analysis form, and a year-to-date profit and loss statement.
3. The Qualification Standards for Approval
While each mortgage lender will vary, there are some standard qualification criteria you will need to meet in order to be approved for the loan. Your income must be sufficient to cover the cost of your loan. Your assets and your credit score will also be considered. You will typically need a FICO credit score of 620 or more to qualify for a housing loan. The other important thing taken into consideration by lenders is your debt-to-income ratio. The percentage tells lenders how much of your monthly income you spend on required bills every month. The lower your ratio is, the more likely you are to be eligible for the loan. Typically, you need a debt-to-income ratio of 50% or less to qualify.
4. What to Expect from Your Loan Officer
A mortgage loan officer represents the bank, credit union, or other financial institution from which you are intending to borrow. Loan officers have comprehensive knowledge of the mortgage process, so they can be very helpful in assisting you with your application. For instance, they know what documentation you need to provide and they understand all of the industry’s rules and regulations.
5. Closing Costs and Down Payment
There is no point in qualifying for a housing loan if you cannot afford the down payment and closing costs, so make sure you know what they will be before you start the ball rolling. The closing costs are additional fees on top of the property price that are due at the closing of the real estate purchase. The costs can cover things like the origination and underwriting of your loan, taxes, real estate commissions, title and record filings, and insurance premiums. Typically, closing costs range from 3% to 6% of a property’s purchase price.
The down payment refers to the percentage of the house’s purchase price that you pay upfront when you close your mortgage loan. Different lenders have different requirements, but a 20% down payment tends to be the norm. You can put down as little as 5% with some lenders, though. The amount of your down payment will affect how much the lender enables you to borrow and your interest rate. It can also affect whether you need to pay private mortgage insurance. To know more, read this guide about Florida no closing cost mortgage.
6. Final Preparations Before Applying for Your Loan
To stand the best chance of being successful in your loan application, work towards having an excellent credit score, a low debt-to-income ratio, and a high down payment amount. And before you apply, make sure you have all the relevant documentation. The more prepared you are, the smoother the housing loan process will go.
