Home Loan Tips – How to Get a Home Loan

Interested home buyers generally rely on a mortgage to help them cover the cost of buying a place to live. You may feel anxious at the prospect of applying for a home loan, but you shouldn’t be too worried. Banks and credit unions want to see you happily installed in a new home, but there are a few things to consider first.

For such a significant investment, the institution that you’re borrowing from will assess your income, assets (like other real estate or vehicles), debts (including student loan debts), and credit history.

You will also have some work to do. You need to choose between a fixed or floating rate, how long it will take to pay off the mortgage, and how much you’d like to put down as a down payment.

The First Steps

Before you apply for a mortgage, you need to ensure you are financially solvent. As you begin the mortgage process, start putting away money from your monthly paycheck for a down payment. Many potential homeowners sock away 20% of their wages.

Having your credit report in hand is useful to know where you stand when it comes to the FHA loan system and other financial processes. Being informed about your credit score helps you understand why your mortgage application is approved or rejected.

As you’re putting money away for a down payment, improve your credit by scheduling monthly payments for recurring bills and meeting your financial obligations promptly. Strengthening your credit will pay off in the loan approval process, and it’s as simple as paying off credit cards and resolving past-due debts.

Decide for yourself what is feasible for your budget so that the offered loans won’t need to be reassessed in light of changed financial circumstances. Also, keep a good set of your financial documents close at hand, like recent W-2s, pay stubs, tax returns, and current bank and brokerage statements.

The Real First Step

With all your affairs in order, it is easier to begin the first real step of getting approved for a mortgage or home loan – contacting a lender. Reach out to a mortgage lender to submit the financial documents you’ve gathered to see where you stand.

From there, simply wait for pre-approval, which will break down how much you can afford and what interest rate you’ll pay on the loan. Pre-approval is when the lender reviews your documents and financial situation and offers a pre-approved amount of money to lend you. These offers generally last for a certain period, like 90 days.

Know What You Can Afford

Don’t be taken in by the real estate agent’s sales pitch; know what is within your budget. It’s a good idea to go into the process with a price range so you don’t end up paying more than you’re able. Generally, you shouldn’t spend more than 30% of your gross monthly income on home-related costs like your mortgage.

Another important figure to consider is your debt-to-income ratio, which is determined by taking the gross sum of all monthly debt obligations and dividing by your gross monthly income. The lower it is, the better; if your ratio is above 43%, it can be hard to get approved loans.

Also, be wary of taking the first offer given to you. Mortgage loans can have varying interest rates, fees, and point systems, so it’s worthwhile to shop around and find the best deal (and mortgage lender) for your loan.

Fixed Rates vs. Floating Rates

When you’re buying a home, you will be given options, and you must understand the choices.

The difference between a predictable fixed-rate loan and an adjustable-rate loan is that you have one interest rate for the former, and with the latter, it will change with the market dynamics.

A first-time homebuyer who is taking out a mortgage often looks to a 30-year fixed mortgage plan. Meanwhile, FHA loans are more lenient in credit and income requirements, with a potential down payment starting at 3.5%.

Even adjustable-rate loans are an option, mainly if you think you’ll be in a starter home for just a few years before moving on. Lastly, for the narrow niche of veterans or those currently serving in the military, a VA loan may be available for zero down.

Home Loan

Finding a House

Now comes the fun part. Once you’ve (hopefully) been pre-approved for a loan, you can go house hunting. When you find a home and get an offer accepted, you may have to submit a loan application.

You can apply for a mortgage loan from a bank or a credit union. Often, credit unions offer more attractive interest rates, but you have to be accepted as a credit union member before you can borrow from them.

From there, an underwriter signs off on the entire purchase and conditions of the loan. There is a lot to a mortgage and all the products and services that financial institutions offer. Before you close on a property, there are inspections to make and closing costs to negotiate.

A Breakdown of Mortgage Costs

With all there is to consider about mortgages, it can help understand how a home loan is priced and processed.

For fees associated with the lender, there are a couple of significant components. One is the interest rate or the cost of borrowing money, and it’s critical to calculate monthly mortgage payments.

The second component is an optional discount fee, which can be paid up-front to reduce mortgage payments in the future. The third element encompasses origination and other costs of processing an application, preparing a document, or creating a loan.

Sometimes there can be third-party expenses, like service charges for appraisals and title fees, which are used to establish the property’s rightful owner and need to be processed in a land exchange. Finally, there might be some transfer taxes and government expenses, like recording charges that need to be paid.

Home loans can be refinanced to get better deals for mortgage agreements made in the past. And you can always open a home equity line of credit to fund something else, although this money needs to be paid back.

Final Thoughts

When you’re getting in touch with a lender to help with your homeownership goals, be timely with communication. The more promptly you can send the financial documents, paperwork, and related information, the less likely it will be that problems crop up.

Keeping your credit stable throughout the lending application process can help you secure a mortgage loan. Paying your bills on time will strengthen your credit, and you should avoid applying for new cards or taking out new car loans while you’re waiting for the home loan to close.

For more information, contact T&I Credit Union for mortgage loan assistance.

About Alice Lastrova

A writer with experience in community newsrooms and financial magazines. Avid chef, busy banker, and lover of my cat.

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