Securing a mortgage is one of the most important steps in buying a home. It can be daunting, but with the right information, it can be a relatively straightforward process. Here are some tips for securing a mortgage.
Save A Down Payment
First, you need to have a down payment saved up. The down payment typically ranges from 3-20% of the total purchase price. For example, if you’re buying a $200,000 home, your down payment could be as low as $6,000 (3% of the purchase price) or as high as $40,000 (20% of the purchase price). A larger down payment will typically get you a lower interest rate and better terms on your mortgage.
Get A Good Credit Score
Next, you need to have a good credit score. If you’re looking to improve your credit score, there are a few key things you can do.
First, make sure you’re paying all of your bills on time. One of the biggest factors in your credit score is whether or not you pay your bills on time. So, if you want to improve your score, ensure you’re always paying at least the minimum due on time, if not more. You can set up automatic payments, so you never have to worry about forgetting to pay a bill again.
Another factor that’s considered when determining your credit score is how much debt you carry. So, if you’re looking to improve your score, keeping your balances low is essential. This means making a point to pay down your debt little by little each month. If you can swing it, pay more than the minimum to make a dent in what you owe.
You should also avoid new lines of credit. Opening up too many new lines of credit at once can hurt your credit score. So, if you want to improve your score, avoid that for at least six months to a year. And when you do need to open up a new line of credit, make sure it’s something you can handle and will use responsibly.
Provide Documentation
When you apply for a loan, your lender will require you to provide documentation proving your income and employment status. This is to ensure that you will be able to repay the loan. Documentation can include pay stubs, tax returns, and bank statements.
Pay Stubs
The most common form of documentation is pay stubs. A pay stub is a document that shows your income from employment. It will show your gross income, as well as any deductions for taxes, insurance, or other withholdings. Pay stubs can be provided electronically or in paper form. If you are giving paper pay stubs, make copies to keep the originals for your records.
Tax Returns
If you are self-employed or have rental income, you must provide tax returns as documentation. Tax returns show your gross income and any deductions that were made. You can acquire tax return documents by filing your taxes with an accountant or in paper form from the IRS.
Bank Statements
Bank statements show all deposits and withdrawals from your account over a certain period. These statements are typically required for loans not backed by collateral, such as personal loans or lines of credit. To get your bank statement, you can either call your bank and request a copy or go to your local branch in person.
Consider an FHA loan
When looking for a loan, it’s essential to do your research to ensure that you’re choosing the best option. An FHA loan, which is a mortgage loan insured by the Federal Housing Administration, is an excellent choice for those looking to get a mortgage for several reasons.
First, it has a low down payment requirement, which makes it easier for borrowers to qualify for a loan. Second, it offers a more flexible underwriting process, making it easier to obtain financing. In this process, a lender determines whether or not to approve a loan and at what terms.
Third, it typically has lower interest rates than conventional loans. Fourth, it offers borrowers the opportunity to finance closing costs. Fifth, it allows borrowers to use gifts and grants for the down payment and closing costs. Finally, an FHA loan is available to first-time and repeat home buyers.
When planning to secure a mortgage loan, take these steps of saving up for a down payment, having good credit, considering an FHA loan, and providing documentation of income and employment status to prove you can make monthly payments. Once you have all these things considered—or know what steps you need to take to get them in order—you’re closer to securing financing for your new home.
