After the recession, practically all mortgage lenders tightened their fists, making it more difficult to get home loans. However, young home buyers and first time home buyers can still fulfill their dreams of buying a house by getting approved for a mortgage.
The real estate market has become even more competitive and buying a property requires more aggressiveness on the part of the buyer. The increasing competition in the market simply means that intending home buyers need to be qualified for a mortgage before shopping for a property.
Some of the factors to be considered before applying for a mortgage include your monthly income, your credit score, the total monthly debt payments, and the amount you can afford for the home.
Below are 6 tips to ensure you get approved for your first mortgage.
1. Understand and calculate your debt obligations and your income
The first step to getting approved for a mortgage is understanding your debt obligations and monthly income. The relationship between your gross monthly income and the payments you make every month is called the “debt-to-income ratio.” Texas mortgage lenders and other lenders across the nation require that you provide at least two weeks of pay stubs or a 30-day paycheck stub. Therefore, it only makes sense to start collecting these documents even before applying.
For self-employed persons and those with variable income, the underwriting process is usually more involved and in some cases, they are required to submit copies of past 2 years’ tax returns.
To get approved for a mortgage, borrowers are meant to stay within some ratios used by lenders to determine the amount the borrower can afford to repay.
2. Check and manage your credit
Before you go ahead to apply for a mortgage even if you intend getting FHA loans, it is advised that you obtain your credit history report and credit score. This helps you to verify the veracity of the report and identify possible errors if any.
It might be worth subscribing to a service that provides credit report monitoring regularly in the months building up to your mortgage application. For mortgage loans other than FHA loans, the estimated FICO credit score is required to be at least 680.
3. Determine your budget
Before you go to a mortgage lender, it is best to look at your budget and determine the cost of the home you can afford considering your income and expenses. The common rule is that the total house payment should not be more than 35 percent of gross income.
4. Determine what you need and save for a down payment
The next step towards getting your first mortgage application approved is to determine how much you can save towards your down payment. On the average, mortgage lenders require a minimum of 5 percent down payment. However, this might not be applicable to persons getting FHA loans or any other such loan program.
For intending homebuyers that can afford it, it is advised that a 20-percent down payment is made to avoid the costly private mortgage insurance otherwise known as PMI. PMI is meant to protect the mortgage lender in case the buyer decides to foreclose before building enough equity in the property.
5. Commit to the maximum amount you intend spending
Before you begin the mortgage approval process, it is advised that you determine the maximum amount you intend to spend on the property and subsequently commit to it. Your desires, friends, and colleagues may sometimes try to tempt you into buying a home that is beyond what you can afford. However, it is advised that you only go for a home that is within your budget regardless of the economic climate to avoid a foreclosure.
6. Where and when to apply
Meeting a mortgage lender and getting pre-qualified is highly recommended, and this can be done at any time. A pre-qualification is informal and it is not binding on any party. However, it shows that your lender thinks that mortgage application will be approved based on your income, credit score and other factors.
Pre-approval comes into the picture as you get close to buying the house. A mortgage broker, local bank, or credit union can get you a pre-approval. National online mortgage lenders can also get you pre-approved online.
All in all, prime borrower candidates (good income and credit); tend to get the best rates from reputable mortgage lenders. For persons that do not fall into this category, shopping around for the most suitable mortgage loan will be the best option. If you are ready to buy a home in Texas, we recommend this Houston mortgage lender.