Financing a house with a loan involves more than just contacting a lender or a mortgage company. Getting an approval is not a straightforward process, as you need to meet certain qualifications and requirements. Lenders, for the most part, want to know and make sure that you can pay back a loan over a set period of time.
Shop and Compare
The qualifications for a mortgage differ depending on the lender. Some companies may have strict requirements, while others might have lenient ones. This makes it important to shop around and compare loan products from various lenders. This will help you determine which offers the best rates and terms. In most cases, lenders prefer those with no or less debt, or low debt-to-income (DTI) ratio.
Prequalification vs. Preapproval
American Loans and other mortgage lenders in Salt Lake City note that getting prequalified lets you know that amount of loan (estimate) you can afford or borrow. This can be done over the phone by providing prospective lenders basic financial details about your monthly income, credit score, and assets.
You can then move on to pre-approval, which is a more involved process. This includes completing a loan application and supplying the lender all the necessary documentation. This will let you know the specific loan amount you can borrow. Getting pre-approved tells sellers that you’re serious about your offer and buying the house.
A high credit score is one important factor for many lenders. A score of 720 or more indicates that you know how to manage your debt and finances, which makes you an attractive borrower. A score below 620, on the other hand, is poor credit rating and may make it difficult for you to qualify. Some lenders may still offer you a loan, but this may have high-interest rates.
Apart from credit score, a lender also considers the following:
- Down payment. The ideal number is 20% of the purchase price, so you can reduce the amount of loan you need to borrow and avoid private mortgage insurance (PMI).
- Employment history. Lenders favor those who have been in the same job for two years or more, as this indicates stability.
- Verifiable income. You need to prove that your income is stable and sufficient through W-2s, tax returns, and other financial documents.
Make yourself an attractive borrower by getting your finances in shape. You should also work with a reliable lender to determine the type of mortgage that suits you best.