A mortgage is one of the most stressful things anyone will experience in their life. Although the mortgage process can be complex and takes a lot of time, patience, and paperwork, it is possible to complete it with ease.
These 10 tips will ensure that the loan process runs smoothly and efficiently.
Tip #1
Check your credit report for errors. Check your credit report for errors. Contact the credit bureaus to have the errors corrected.
Tip #2
Purchase only what you can afford. DTI (debt to income) is the ratio of your monthly debt payments to your income. The maximum DTI allowed by most mortgages is 41%. However, you should aim for a DTI ratio no higher than 36%.
Tip #3
PMI (private mortgage insurance) can be avoided if you have 20% down. If you have less than 20% down payment, mortgage insurance will be required. The PMI rate varies generally depending on which type of mortgage you choose. It can range from 0.35% to 1.0% per year.
FHA loan PMI is 0.85% of loan amount and is required for the entire loan term. Conventional mortgage PMI costs 0.51%. It is required until the loan balances reach 78% LTV.
Tip #4
To be eligible for a mortgage, you don’t have to have perfect credit. To be eligible for a loan, many mortgage programs require that you have a credit score of 620 or more.
FHA loans can be obtained for people with low credit scores, as low as 580. But, just because your credit score is 580 doesn’t guarantee that you will be eligible.
Lenders consider more than your credit score. Credit history should be clean for the last 12 months with no collections or late payments.
Tip #5
Prior to applying, try to improve your credit score as much as possible. Everybody should ensure that their credit score is as high and as good as possible. Pay less than 15% on credit cards with high balances.
Contact the credit bureaus to dispute negative account information. Negotiate a payment for deletion with your creditors. You can add a friend or relative with a good credit score to your account as an authorized user.
Tip #6
A down payment may not be required. Conventional loans require a down payment of between 5% and 20%. There are many government mortgage programs that allow you to pay less than 5%.
FHA loans only require a 3.5% down payment if your credit score is at least 580. VA Loans and USDA loans do not require any down payment. FHA loans are the most sought-after type of home loan available in 2017. It’s easy to understand why FHA loans are so popular with 3.5% down.
Tip #7
Have a little extra cash in reserves. Your lender will typically require that you have at least two months’ worth of mortgage payments in reserve.
Lenders won’t lend a mortgage to anyone who has exhausted all their savings in order to qualify. The better your reserves are, the more you can get a mortgage loan.
A large savings account can make it easier to get a mortgage. The ability to save a lot of money can be viewed as a way to make up for bad credit.
Tip #8
You need to make sure that you find the right mortgage lender for your financial situation.
Tip #9
Select the right mortgage loan type. There are many types of home loan programs. For those with good credit (640+) and 20% down, conventional loans are the most affordable type of mortgage.
Veterans who are eligible for VA loans have the best choice of mortgage. VA loans do not require a down payment and don’t have an annual PMI.
Look for down payment assistance and grants for first-time homebuyers.
HUD lists various state grants and programs on its website. You may also find local programs in your state, county, or city. For more information, visit the local Government website.
Tip #10
Make sure you have all of your documents. You can save a lot of time by having all the right documents ready prior to starting the mortgage process.
An officer will need to verify income and tax documents. Here’s a checklist of mortgage documents.
- W2s from past and current employers
- Paycheck stubs
- Bank Statements
- Tax returns for the last 2 years
- If you are using gift funds, you can send a gift letter
- Make a list of all your debts
- Check out your assets
- Proof of timely rental payments
- Statements on Profit and Loss in Credit Report
- Sales agreement signed
- Additional income proof
- Divorce decree (if applies)
- If applicable, bankruptcy paperwork