How to Get Approved for a Home Loan

Learn some simple steps to increase your chances of qualifying for a home loan in today's difficult real estate market. Owning a home is the American dream but the dream is out of reach for many people whether due to an unavoidable bankruptcy or the lenders' strict guidelines. This article will focus on steps that can be taken today to increase your chances of being approved for a home loan in the future.

In today's real estate market, getting lender approval for a home loan has become harder than ever. With the steady decline in the real estate market, home prices are dropping at an astounding rate and mortgage lenders are skittish about loaning money to anyone. Even those with an extremely high credit rating will find that obtaining a loan is not as easy as it was a year or two ago. However, don't give up hope, there are things within your control that you can do to improve your likelihood of being approved. It may not happen overnight, but chances are you will find the perfect lender to meet your needs and you theirs.

Instructions

1. Clean up that credit! The first item on your list should be to obtain a copy of your credit report and credit score. Lending institutions will look at your credit score before ever considering you for a loan. The credit score rating system ranges between 300 being the worst and 850 being excellent. Banks and other lenders will use this score to determine your interest rate, the amount required for down payment and what mortgage types you are qualified to obtain. If you have a low credit score, take a look at your credit report to see what outstanding debts you still owe or if there a debts that were paid and should be removed.

2. You will need both a checking and savings account. Having both of these accounts shows lenders that you are financially mature. They will be looking to see if you are consistently overdrawn and if you make regular attempts to increase your savings. However, opening accounts will not be enough, keep in mind that you will be expected to make a down payment, typically 10% of the purchase price. The down payment is basically a means of showing your sincerity towards the purchase, so start saving now to avoid the disappointment of being denied a loan because you do not have funds available for a down payment.

3. A stable work history is necessary if you want a lender to take you seriously. Would you loan money to someone who jumps from job to job? Probably not, so why should the lender? You will want to have a minimum of 6 months full time employment with the same employer, the more time you have the better. In speaking about employment, you will need to take into consideration how much income you have versus expenses. Credit card debt, student loans, and auto loans all count against your overall income when it comes to considering how much of a mortgage you can afford. These items will be taken into consideration by any reputable lending institution so get as much of your outstanding debt paid off as possible before even considering applying for a mortgage.

4. Finally, get prequalified. There is a difference between getting prequalified and pre-approved. During the prequalification process, the lender will take information provided by you on faith and calculate how much home you can afford. It is very important during this step that you are completely honest with the lender and have taken care of the previously mentioned steps. The Pre-approval process comes when you are ready to take that final step of home ownership. During this process, the lender will evaluate your credit, employment history, financial status and any other items deemed necessary for financing. The benefit to pre-approval is the advantage it will give you with not only final approval of the loan but also in dealing with sellers and negotiation of the purchase price of your future home.

Tips & Warnings

• Calculate a budget and stick to it. If you can only afford payments on a $60,000 home, do not let a realtor talk you into looking at homes that exceed your budget.

• Only utilize the services of a Mortgage Broker as a last resort. Mortgage Brokers charge additional fees on top of the closing fees already associated to your loan. You will be better off if you do the legwork yourself in finding the appropriate lender for you.

• Do not go over your budget. Remember, financing institutions qualify you based on your income but only you know how much in monthly payments you can truly afford.

• Be very careful that you are working with a reputable lender. Many mortgage lenders have fallen during the real estate recession due to overextending loans to individuals who did not truly qualify.

Resources

• FreeCreditReport.com
• Mortgage Payment Calculator