Getting financing for a new house can be complicated and take a long time. There are various financing options available, each with its pros and cons. You should consult brokers and agents before and during the process.
To aid you in this important step, we have compiled a guide with the six essential steps to obtain home financing.
Evaluate your financial situation
There is a very helpful calculation you should try before moving forward. To calculate your debt-to-income ratio add your estimated monthly mortgage to your other monthly expenses, including credit cards, loans and others.
Then, divide the result by your gross monthly income.
If you get anything higher than 35% you should pay off some debt first. On the other hand, if the result is very low your interest rates could be higher, so try to boost your credit rating. It would be great if you could down pay at least 20% through savings or assets.
Explore the options
You should decide if you prefer higher monthly payments or a longer-term loan. You must also consider whether you want your mortgage to come with fixed or adjustable rates. For that, study the current market thoroughly.
Choose the mortgage lender
Aim to get at least three referrals and search for the best terms. If you want to apply for a USA Federal Housing Administration loan, check the official online list to make sure your lender is certified.
Obtain a pre-qualification letter
Pre-qualification estimates how much you can support to spend. It can be done with a broker or a lender. It doesn’t require a commitment from your lender. Once pre-qualified, you can search for houses within the established price range.
Get a pre-approval letter
This should be done once you have found a house that interests you. The letter involves a credit check and a fee, but it will boost your appeal to sellers and agents.
Apply for financing
You should only apply for financing when you have an offer on your property of choice. Schedule an appointment with your lender to discuss income, taxes, purchase terms, monthly payments and assets.
You should be equipped with all the necessary documentation.
If your application is not approved, you should receive a written justification. If it is approved, that’s it! You have completed the process and can proceed with the closing. It’s time to get settled.