The first step to getting a home loan is preparing. Ultimately, banks want to minimize risk, and having your finances in good shape will count in your favor when applying for a loan.
No matter if you are buying your first house or if you are shopping for your third home, applying for and getting a home loan can seem like an overwhelming process. If you are ready to fill out the paperwork for pre-approval and your loan, here is some specific financial information that almost all lenders consider before approving.
Your Credit Score
Before applying for a home loan, request a credit report to see your credit score. Your credit score is the number that banks use to judge your past credit history. Ranging between 300 and 850, a FICO score details your payment history, credit use, and length of credit history. A low credit score tells the bank you may be a risky borrower, and you may have a more challenging time getting a home loan.
Here are the general credit score rankings (the average credit score is around 695):
- Perfect credit score: 850
- Excellent credit score: 760–849
- Good credit score: 700–759
- Fair credit score: 650–699
- Low credit score: 650 and below
If your credit score is low, there are ways you can improve it, like fixing late payments, clear any outstanding collection accounts, open a secured credit card, and more.
For information about how credit agencies calculate your score, read myFICO’s What’s in My Credit Score.
You don’t need a high income to qualify for a home loan, but how much you make will determine the loan amount you are approved for. Banks will also want to know how much monthly income you have at your disposal to ensure that you have enough money to pay your monthly mortgage payment.
Banks will consider your monthly income from all sources, including salary, bonuses, dividends, and more.
Your Current Loans
Commitments to other loans may affect your ability to pay back your mortgage. That’s why banks look at other long-term debt such as student loans, car payments, and credit cards.
Your Down Payment
When you are getting a home loan, banks typically require a down payment. Depending on the type of mortgage, you may need up to 20% of your home purchase price for a down payment.
Not ready to pay a 20% down payment? Consider government-insured programs that allow you to pay less upfront. Borrowers can get a Federal Housing Administration (FHA) loan for as little as 3.5% down.
Learn more about FHA loan requirements and ask your lender for the best options.
Choose the Sarah Bernard Realty Team for Your Homebuying Needs
After you’ve received approval from the bank and you know how much you have to spend, you are ready to start house shopping.
When you work with the Sarah Bernard Realty team, we have the expertise to guide you through the home buying process. Contact us today for a complimentary consultation or call (314) 780-9070!