Oftentimes, the Average Joe doesn’t know much about obtaining a home loan. People hear reports of dropping interest rates and lower home prices and hastily decide to jump into home ownership. To their surprise, they discover that the process of getting a home loan differs from getting a car loan or renting an apartment. Applicants who don’t recognize these key differences are often disappointed when a lender denies their mortgage loan application.
How to prepare your finances to help qualify for a home loan:
- Save your money. To gain approval, to have funds for a down payment and make sure it won’t drain your savings. Lender’s don’t want to see you become “house-broke.” At SouthPoint, our minimum down payment on a home loan is five percent of the purchase price. Gifted funds, require at least three percent of the down payment funds to be your own. Save your cash!
- Know your credit score. There are great free resources to check your score, like http://annualcreditreport.com. Ensure payments are made on time, pay off any collections you may have and keep your credit pulls to a minimum to keep a high credit score. If you make your credit card payments on time, but the balance is near its limit, it is hurting you more than it is helping you. Aim to keep your credit card balances below 40 percent of the total limit.
- Know what you can afford. While a $150,000 house looks great, make sure you can afford the payments. We don’t want to see our members struggling to make house payments. It may just require that you wait an extra 5-10 years to get that “dream house” you have always wanted.
It’s important to remember that qualifying for a mortgage is a marathon, not a sprint. If you are not able to qualify today, it will take some effort on your end to work towards getting that pre-approval. Saving assets and building credit take time! I purchased my first home at 25 and am currently in my second home seven years later. I’m not in what I would consider my “dream home” just yet, but the goal is to get there in the next 5-10 years. Don’t get discouraged if achieving your home ownership goals take a little longer than you originally hoped.