How To Get Pre-Approved For A Home Mortgage Loan (It’s Easier Than You Think!)
Buying a home is a significant milestone that many aspire to achieve. It’s an investment in the future, a place to call your own, and a symbol of financial stability. However, getting approved for a mortgage loan can be a daunting task, especially for first-time home-buyers. With lenders tightening their criteria and the mortgage process becoming more complex, navigating the path to homeownership can feel overwhelming. In this blog post, we’ll show you how to increase your chances of getting approved for a home mortgage loan. From improving your credit score to saving for a down payment as you get ready to take the first step towards your dream home.
Buying a home is a major financial decision that requires careful planning and preparation. One of the most critical aspects of the home buying process is obtaining a mortgage loan. However, getting approved for a home mortgage loan can be a daunting task, especially for first-time homebuyers. This comprehensive guide will walk you through the essential steps needed to get approved for a home mortgage loan, with a focus on the importance of checking your credit reports and credit scores, as well as preparing all necessary documents, including personal information, proof of income, and asset information.
Step 1: Check Your Credit Reports and Credit Scores
Before applying for a mortgage loan, it’s crucial to check your credit reports and credit scores. Your credit score is a numerical representation of your creditworthiness and plays a significant role in determining your eligibility for a mortgage loan and the interest rate you’ll receive. Your credit reports contain detailed information about your credit history, including your payment history, credit utilization, and account balances.
To check your credit reports, visit https://www.annualcreditreport.com/ where you can obtain a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once every 12 months. Review each report carefully for errors or inaccuracies, and dispute any errors with the credit bureau.
To check your credit scores, consider signing up for a free credit monitoring service, such as Credit Karma or Credit Sesame. These services provide free access to your credit scores and offer personalized recommendations on how to improve your scores.
You may also find that your bank and credit card companies provide updates on your credit score and debt utilization, free of charge.
Step 2: Improve Your Credit Score
If your credit score is low, take steps to improve it before applying for a mortgage loan. Some ways to improve your credit score include paying bills on time, paying down credit card balances, and disputing any errors on your credit reports.
Pay all bills on time but pay more towards your higher interest credit bills first.
The goal is to keep all debt less than 50% of your overall income, a 33% debt utilization is best.
Keep in mind that improving your credit score takes time, so start working on it as soon as possible to increase your chances of getting approved for a mortgage loan.
Many of our Lending partners specialize in financial planning and debt payoff, so if you have questions or a special circumstance, don’t hesitate to reach out for a referral to one of our Lenders. It’s never too early to start the planning conversation.
Step 3: Save for a Down Payment
Most mortgage lenders require a down payment, (a percentage of the home’s purchase price paid upfront). The amount required varies depending on the lender and the type of mortgage loan. Your Lender or Mortgage Broker can customize a plan to fit your needs. You no longer need 20% down to buy a home, as there are now loans that start at $0 down. However, the greater your down payment, the lower your monthly payment will be. You will also need to plan for closing costs which include loan fees, title fees, homeowners insurance, and property taxes. If your down payment is not at least 20% of the home’s purchase price you will also have to add private mortgage insurance (PMI) to your monthly budget.
Start saving for a down payment as early as possible, as it can take a while to save up enough money. Consider setting up a separate savings account dedicated to your down payment to help you stay on track.
Step 4: Get All Necessary Documents Ready
You will also need to provide documents, including personal information, proof of income, and asset information. Gather these documents before applying for a mortgage loan to streamline the application process and increase your chances of approval.
Some documents you’ll need to provide include:
(a). Personal information: Social Security number, date of birth, and current address
(b). Proof of income: Pay stubs, W-2s, and tax returns.
(c). Asset information: Bank statements and investment account statements
Step 5: Apply for a Mortgage Loan
Once you’ve checked your credit reports and credit scores, improved your credit score, saved for a down payment, and gathered all necessary documents, it’s time to apply for a mortgage loan.
Shop around and compare mortgage rates and terms from multiple lenders to find the best option for your needs. Be prepared to provide additional documentation and answer any questions the lender may have during the application process.
Getting approved for a home mortgage loan can be a challenging process, but by following these tips, tricks, and best practices, you can increase your chances of approval.
Reach out to me with any questions or for a Lender referral, as I have an amazing team of professionals ready to support you!
Your Oregon Realtor®