Last year, first-time buyers made up 31% of all home buyers, but the typical buyer was around 47 years old. If you are a first-time homebuyer, you might not know how to secure a mortgage.
The process to get a home loan takes time, but if you take the right steps, the process can go quicker.
Don’t let a mishap occur during the home buying process. Keep reading to learn seven of the best tips on getting a mortgage.
1. Boost Your Credit Score
Before you can get a home loan, you have to have a certain credit score. If you’ve been on the search for mortgages already, you’ve probably noticed that credit scores are a major topic of conversation.
Your history as a borrower is a factor in getting a home loan. Among other factors, a lender will view your credit report and score to determine the risk.
Part of how to get a home loan is boosting your credit score if necessary. You can do so by checking that the information on your credit report is accurate and paying down any revolving account balances.
It’s important to know the weighted factors that determine your credit score. The following are things to look out for when attempting to boost your credit score:
- Payment history
- Amounts owed
- Length of credit history
- New credit
- Types of credit used
Each factor is weighted differently with payment history being high impact and new credit and types of credit used being low impact.
2. Prepare Your Finances
Because lenders are less lenient than they once were, it is important to prepare your finances ahead of time. Specifically, you should start saving for a down payment.
If you are getting a mortgage through FHA loans or VA loans, you’ll have little to no down payment, but not everyone qualifies for these types of mortgages. If you save enough for a down payment, you’ll have more loan options.
The down payment amount might dictate certain loan conditions such as:
- Interest rates
- Private Mortgage Insurance (PMI)
- Overall monthly mortgage payment
The home buying process takes time so starting 6-12 months early on the preparations is key. You can work with a loan officer who can give you the best advice about home loans ahead of time.
If you do have to pay certain fees because of a low credit score, you’ll be glad you saved money in advance. This home loan for teachers comes with a free credit score check and no lender fees.
3. Get Preapproved
The best way to tell if you can afford a home loan is by getting preapproved. Not everyone chooses to forego this step but it is critical for most. Sellers will prefer someone who is preapproved over someone who is not.
A lender likely will need the following documents to preapprove you for a home loan:
- Complete tax returns from the past 2 years
- W-2 or 1099 forms from the past 2 years
- Pay stubs from the last 30 days
- Government-issued ID
- Bank statements from the last 2 months on all accounts
A preapproval letter doesn’t guarantee that you’ll qualify for financing, but it shows the seller you have your finances in order.
Keep in mind that preapproval letters have a shelf life. They are only valid for around 60-90 days before your information needs to be reverified. Keep this document on you when looking at homes and during other stages in the home loan process.
4. Choose a Lender
Every mortgage lender will have its rates and fees. As a general rule of thumb, you should compare the rates of at least two or three lenders.
You can submit multiple mortgage applications where the lender is required to provide you with a loan estimate. All loan estimates will have the same information which makes comparisons easy.
Once you have all of the loan estimates from lenders you are interested in, you can use these documents to your advantage. An estimate is not set in stone, use your comparison leverage to negotiate better rates or fees.
5. Submit Your Loan Application
There are different ways to get a home loan, but the application process is similar across all methods. You’ll have to gather the necessary documentation to verify finances.
Here are some of the items you’ll need to submit with your application:
- Tax returns
- Pay stubs
- Bank or investment account statements
- Government-issued ID
- Authorization to pull credit reports
- Documentation of current debts
- Employment history
- Housing history
Because this is the real deal, you’ll need more documents compared to the preapproval process. Self-employed individuals might need to provide more information.
6. Prepare for the Underwriting Process
The underwriting process is when a lender verifies that you are qualified as a borrower. To receive final approval for the home loan, your financial health will be in question.
The two outcomes that could come from the underwriting process are issuing the mortgage or an application rejection.
During this time, avoid making big purchases, closing and opening accounts, and making large deposits or withdrawals. These changes in your credit profile won’t go over smoothly with lenders.
7. Close on the Home
The closing process involves a lot of things such as a home appraisal, title search, and securing title and homeowner’s insurance. The process begins once your offer gets accepted.
During the closing process, the lender might want to verify that you are still employed. They might require employment verification up to the final day of closing.
It can take weeks to months to complete the closing process. It’s all said and done at the final property walkthrough and when you sign the dotted line.
How to Get a Home Loan Explained
Knowing how to get a home loan is easy when you follow these seven steps. However, knowing and doing are not the same.
Finding lenders, getting approved for a mortgage, and moving into the home of your dreams is going to take time. You won’t be able to rush the process so start ahead of time by using this guide.
For more real estate tips like this, check out the other posts on our blog.