Taking the leap into homeownership is exciting, but it can also be a lot of work. The process of applying for a mortgage may be uncharted territory for you, but having the right guidance can help you navigate it with ease. To make sure you’re not making any mistakes along the way, this article has put together a list of four common pitfalls that tend to bite people in the back when applying for home loans and how to remedy them. So whether you’re considering refinancing or taking the new home loans from Homespire, these tips will help you avoid some common errors and get you on the right track toward homeownership!
Before Applying for a Mortgage Get Your Credit in Order
Good credit is a crucial factor in getting approved for a home loan, therefore, you must have good credit before you apply. Not only that but having great credit can also help determine what interest rates you’ll be offered on your loan. With this in mind, there are some easy ways to check your credit score and make sure it’s in great shape before applying. For instance, there are online tools that let you quickly view your credit report, so it’s prudent to check them out before jumping into the loan application process. A score of 730 or higher is typically considered “excellent,” while a score below 600 is usually considered “poor.” Though some loan programs may accept scores as low as 540. The last thing you want to do is apply for a home loan only to find out that your credit’s not up to par!
When it comes to increasing your score, there are many ways to do so. For starters, pay your bills on time. Make an effort to pay above the minimum amount due, and try paying your bills earlier than their due dates to ensure they’re paid on time. Also, use as little credit as possible, and pay down your credit card balances every month. You are sure to see your utilization score improve.
A Prequalification Rather Than a Preapproval
Prequalification and preapproval are two different things. A prequalification generally takes place over the phone or online, where you provide basic information about your income and credit score to give the lender an estimate of how much they can lend you. However, lenders do not rely on this information, and you’ll still need to provide documentation like bank statements or pay stubs before they can officially pre-approve you. A pre-approval indicates that the lender has reviewed your documents and is confident that you qualify for the amount of home loan you are seeking. This representation is not based on estimation, but rather on your actual credit score and financial information.
Choosing a Lender Without Shopping Around
Before you jump into applying for a home loan, it’s important to do your research and shop around at different lenders to compare interest rates and loan fees. Even if you’re pre-approved for a certain amount, don’t hesitate to take the time to compare. The last thing you want is to be stuck with an unfavorable rate that could have been avoided simply by shopping around. Don’t hesitate to interview each lender before choosing one. Be sure to ask about things like the availability of homeowner’s insurance, closing costs, and mortgage insurance options. You should also inquire about prepayment penalties, flexible loan terms, and potential refinance opportunities later on down the road.
Setting Your Budget Based on the Pre-Approval
If you’ve applied for a home loan and are pre-approved for say $200,000, don’t use this figure as a strict guideline for how much you should spend on your new home. This amount simply indicates how much of a loan the lender is confident in approving based on your credit score and income. However, your budget should be based on how much you can comfortably afford to spend on a home, and what monthly payments you can handle. So, this could mean going for a loan that is lower than what you have been pre-approved for.
If you’re thinking about applying for a home loan, it’s important to make sure your credit score is in good shape before submitting an application. A high credit score will help determine the interest rate on your loan and can also increase your chances of getting approved. To avoid any unpleasant surprises with pre-approval or rejection based on credit scores, be sure to check your credit score beforehand. Remember to apply only for a loan that you are comfortable with based on your available funds, credit score, and financial obligations.