Applying for a Home Loan for the First Time? 5 Mistakes to Avoid Thinking of buying a home? You have to take three important steps to unlock the door to homeownership. Before choosing the licensed real estate agent and finding the right home, the first and foremost important step is getting approved for a mortgage. Applying for a home loan helps you to afford the down payment and closing costs of home loans, however, if you are applying for the first time, you need to be careful to avoid these five common mistakes.
1. Searching for a home before applying for a loan Buying a home must begin with a mortgage prequalification and not with a home searching. It is important to expose your financial situation in front of your lender to get preapproved first, before looking for a home. 2. Make yourself eligible for a mortgage Your credit report and your debt-to-income ratio define the relationship between how much money you owe and how much money you are getting in your pocket. Your lender analyzes these factors to understand if you qualify for a loan and to identify what the rate will be.
For this, you need to ensure that you have all the documents ready to present to your lender which includes your financial account statements, your tax returns, and pay stubs. Moreover, improve your credit score and debt-to-income ratio before lending a mortgage in order to match the qualification criteria and get the best terms on a loan. 3. Unable to differentiate between prequalification and preapproval Don’t misunderstand prequalification as loan approval. It is basically an estimate that a lender provides to you of what your price range should be. On the other hand, preapproval is a loan approval condition where a mortgage underwriter accesses your credit and ability to repay your loan.
4. Failing to consider closing costs Beyond the down payment, buying a home involves a significant aspect which is known as closing costs. This may include attorney fees and title insurance that are due when you sign final mortgage loan documents. So, take into account this closing cost to your budget while lending a mortgage. 5. Applying for new loans before closing the deal Once you have prequalified for the loan, searched the home and signed the contract, don’t finance any big purchase as any new loan on your credit report may subject to closing. So when you are applying for a home loan for the first time, do not commit these mistakes and put yourself in any unwanted situation.
Original Source: https://medium.com/@rochesterneighborworks/applying-for-a-homeloan-for-the-first-time-5-mistakes-to-avoid-9f3f56136e1c