6 Ways to Increase Your Chances of Getting a Home Loan
Updated: Sep 14, 2022
According to the National Association of Realtors, the average home price in the United States is $272,000, while the median income is $63,000. This means most people cannot afford to purchase a home outright. For many people, a home is the most expensive purchase they will ever make.
If you're in the market for a new home, the process may seem daunting, but if you do your research and work with a good lender, you can get a great loan that will help you comfortably buy your dream home.
Here are 6 ways you can increase your chances of getting that home loan;
1) Know your credit score: A high credit score indicates that you are a low-risk borrower.
Your credit score is one of the most important pieces of financial data that lenders look at when considering lending to you. A high credit score, or average score of 720, will show that you are a low-risk borrower and more likely to repay your loan on time.
If you need to improve your credit score, paying your bills on time and using a credit monitoring service like the Club 720 app are two easy ways to get started.
Taking these steps will not only help improve your chances of getting approved for a loan, but can also help you get better interest rates and terms. A good credit score can give you some negotiating power with lenders. If you have strong credit, you may be able to negotiate for better terms on your home loan, such as a lower interest rate or a larger loan amount.
2) Maintain consistent employment: Lenders want to see that you have a consistent stream of income
A consistent stream of income is important for many reasons, but especially when it comes to securing a home loan. A lender will want to see that you have a steady job and reliable income before they approve your loan. Without a consistent income, it will be difficult to prove to a lender that you can afford the monthly payments on the mortgage.
Additionally, having a consistent income stream can also help you get better terms on your loan. Lenders typically offer lower interest rates and fees to borrowers who have steady incomes. This can save you thousands of dollars over the life of your loan.
3) Have a low debt-to-income ratio: Try to keep your monthly debts below 30% of your income
A debt-to-income (DTI) ratio is one of the most important factors that lenders consider when determining whether to approve a loan. This ratio compares your monthly debt payments to your monthly income and is used to determine whether you have the financial resources to make your loan payments on time.
There are two types of debt-to-income ratios that lenders use: front-end and back-end. The front-end ratio only includes your housing expenses, such as your mortgage payment, property taxes, and insurance. The back-end ratio includes all of your monthly debt payments, including your housing expenses, car loans, credit card payments, student loans, and any other debts you may have.
4) Shop around for a loan: Compare interest rates and terms from different lenders.
If you're in the market for a loan, it's important to compare interest rates and terms from different lenders. Interest rates, terms and fees can vary significantly, so it pays to shop around.
Here are some things to keep in mind when comparing loans;
Interest rates can vary based on your credit score, the type of loan, and the lender. Be sure to compare apples to apples when you're shopping around.
Loan terms can also vary widely, so be sure to read the fine print before signing anything. Some loans may have prepayment penalties or other restrictions that you'll want to be aware of.
5) Get pre-approved for a loan: This shows that you are serious about buying a home and what you’ve already been approved for
When you're ready to buy a home, the last thing you want is to be denied a loan. The best way to avoid this is to get pre-approved for a loan before you start shopping. If you're looking to get pre-approved for a loan, the Club 720 app is the easiest way to do it. With just a few clicks, and some basic information about yourself and your finances, you can get pre-approved for a loan in minutes.
Getting pre-approved is important because it gives you an idea of how much money you can borrow and what your interest rate will be. It also shows sellers that you're a serious buyer.
Got your pre-approval letter? Great! Time to house hunt. But first, consider the following before you start shopping for your new home:
First, when you get pre-approved for a loan, the lender will give you a letter that states how much money they are willing to lend you. This is based on your income, employment history, credit score, and other factors. It's important to note that getting pre-approved does not mean you are guaranteed to get the loan. The final decision will be made based on the property you choose and the lender's underwriting guidelines.
Second, having a pre-approval letter in hand gives you an advantage when making an offer on a home. The seller will know that you have been approved for financing and are serious about buying their home. This can give you an edge over other buyers who have not been pre-approved.
6) Save for a down payment: Because every situation is different, it’s best to start preparing now
In order to save for a down payment on a home loan, one of the smartest things you can do is to start setting aside money as soon as possible. The sooner you start saving, the more time you have to let your money grow. One way to jumpstart your savings is to set up a separate account that is dedicated solely to your down payment fund. Then, make it a priority to contribute to this account every month. You may need to make some sacrifices in order to reach your goal, but it will be worth it when you finally have the keys to your new home.
Not everyone has the time to save up for a down payment. If that’s the case and you're looking for down payment assistance, you have options. One option is a down payment assistance loan, which can come from a variety of sources.
These loans can be a great option if you don't have the savings for a down payment, but they do come with some risks. Before you take out a down payment assistance loan, make sure you understand the terms and conditions before you sign the dotted line.
With that, if you are hoping to take out a mortgage in the near future, be sure to try these tips to increase your chances of getting the loan. By following the tips listed above, you can show lenders that you are a responsible borrower and help them determine their decision to offer you the loan you need.