Owning a home is one of the most exciting times in your life. Having a house that is YOURS and that no one can take away from you is pretty awesome. Not to mention, it can be cheaper to own instead of rent because of the way a home loan is set up. However, unless you have a huge amount of savings you will be applying for a home loan and if that is the process you are looking into, here is exactly How to Apply for a Home Loan.
How to Apply for a Home Loan
#1. Write out your budget.
One of the biggest things you should do when it comes to applying for a home loan is know what you can afford. You can do this by writing out your budget. This is a simple step that shows what you have coming in and what you have going out financially.
#2. Save for a down payment.
This should probably happen within a few years of you wanting to buy a house. A down payment is important because most banks won’t give you the full amount to borrow. You’ll need anywhere from 3.5-20% down on your house once you decide to buy. If you aren’t able to save, look into state funded programs that help provide down payment assistance to first time home buyers.
#3. Have a Steady Stream of Income
Another important step in applying for a home loan is making sure you have a steady stream of income coming in. Most banks will want you to have a job with the same company for at least a year before they will approve your home loan. However, this varies by mortgage company. If you are a small business owner, expect to have a profit and loss statement ready, bank statements, and many other forms to prove your income.
#4. Gather All of Your Important Financial Documents
Something you will quickly see when you’re applying for a home loan is that you will need every financial document you can get your hands on. Typically, you need paycheck stubs, taxes, bank account information, and any other information they give you. You have to be ready to gather all of your financial documents and hand them in! And one more thing: your credit score will also have a huge impact on your ability to get approved for a home loan.
#5. Pay Attention to the Interest Rates
Most mortgage companies will lock in an interest rate for you, so it’s important that you pay attention to this interest rate. This will be what determines your payment over the next 10 to 30 years, so it’s a vital part of the loan process. In the long-term, a fixed interest rate is better because you know exactly what you are paying but there can be some benefits to variable rates especially in the beginning so make sure you fully understand both.
#6. Get Pre-Approved
Most realtors won’t even show you a home unless you are pre-approved. Keep in mind that being pre-qualified and pre-approved are two different things. Pre-approved means you fill out the home loan application and the loan officer gets every financial document he needs from you beforehand. Pre-approved also means you are approved up to a certain amount (a rough amount) based on your credit history and income.
#7. Start the Home Buying Process
Once the mortgage company gives your pre-approval, you can start the home buying process. Your actual loan approval won’t go through until after you have chosen a house and you follow the dozens of steps right up until closing day.
One of the best tips for applying for a home loan is to get everything ready beforehand and turn in everything your loan officer asks for. Good luck on buying your first home!