Top Tips For Getting Your Next Home Loan
Getting pre-approved for a home loan can help you save a lot of time if you know you’re going to start hunting for houses soon. The pre-approval process requires your banker to check your credit score, figure out your debt-to-income (DTI) ratio, and evaluate your overall financial situation to determine the maximum amount a bank would be willing to lend you to buy a home. After the pre-approval, you can start searching for houses belonging to that price range.
Look At Houses That Fit Your Budget
Make it a point to only look at houses that fall within your budget. If you’re pre-approved for $400,000, don’t assume the bank will give you a loan for a higher amount and end up making an offer exceeding the said amount. Some lenders are quite strict about the cutoff amount—if you exceed it, your offer could be turned down.
Get Your Financial Documents In Order
As a part of the loan qualification process, the lender will require you to submit your last two years’ income taxes and W-2 forms, along with the past 1-2 months’ employment check stubs.
If you’re self-employed, you may have to show all the withdrawals and deposits you’ve made to your business checking account over the past year. You may also have to show your balance sheet.
Don’t Make Large Purchases
Even if you’ve been pre-approved, your bank will check your DTI ratio and credit again before it formally approves your home loan. Making a large purchase, such as a new car, after being pre-approved could make your DTI ratio unacceptable. As a general rule, steer clear of making large purchases until your home loan is finalized.
Rectify Errors On Your Credit Report
If your credit score is lower than 660 even if you clear your bills on time, there’s a chance your credit report contains errors. Each of the three reporting agencies (Equifax, TransUnion, and Experian) is allowed to give you one free copy of your credit report every year. If any of the reports contain incorrect information, you can follow the instructions to challenge it and get it rectified.
Apart from these, pick a house that’s in decent shape, understand the importance of your credit score, calculate your DTI ratio, and save for a down payment to improve your chances of getting a home loan.