Home Loans and Mortgages Made Easy
The decision to buy a home is one of the most important decisions that most people are faced with in their lifetimes. In addition to the practical considerations such as finding a home that suits the needs of the family, there are many financial considerations as well. Applying for a mortgage can be a stressful undertaking for even the most patient of individuals; for first-time home buyers, it can be downright overwhelming. This doesn’t have to be the case if preparations are made in advance of the home loan process so borrowers have a realistic idea of what to expect.
Borrowers Must Know Their Credit Score
A credit score is a number that is assigned to a borrower’s personal credit file by FICO, also known as the Fair Isaac Corporation. This number tells potential lenders how responsible the borrower is likely to be based on analysis of five different factors. Payment history makes up 35 percent of the FICO score, followed by amounts owed at 30 percent, length of credit history at 15 percent, new credit at 10 percent and types of credit used at 10 percent. Lenders and banks are looking for the highest financial score possible, and the interest rates and terms they offer is based primarily on the credit score.
All consumers are entitled to receive a free copy of their credit report each year by requesting one at annualcreditreport.com. There are three major credit reporting agencies, Transunion, Equifax and Experian. Consumers can request a report from all three at the same time or from just one. Upon consumer request, each agency must provide one free report every year according to the Fair Credit Reporting Act.
When the potential home owner receives his or her credit report, the first priority is to check for any inaccuracies and report them to the credit reporting agency at once. By law, the agency must investigate the dispute and respond within 30 days. If they can not prove the dispute, they are obligated to remove it. The consumer’s credit file should be as positive as possible before he or she applies for a home loan.
Prequalification Makes Things Easier
Borrowers who are interested in knowing a ballpark figure for how much of a mortgage they qualify for can contact any mortgage company to inquire about this. The representative will need to know the borrower’s typical monthly expenses and income before calculating a prequalification amount. Borrowers can also get a general idea of the going interest rates at their level of mortgage. It is important to keep in mind that prequalification is a guideline and not a guarantee of getting approved for a specific home loan amount. That comes with the preapproval.
How to Get Preapproved
Before applying to a specific mortgage company, loan applicants should contact at least three companies to compare interest rates, closing costs and other variables. After a decision has been made, the borrower can request a preapproval and will be required to give consent to having his or her credit checked. The loan officer will also request personal details, such as name, birth date, social security number, place of employment, etc. Once everything has been confirmed, the loan specialist should give the borrower a certificate of preapproval. The potential home owner is then free to look at several homes before making a final purchasing decision.
The Home Loan Application Process
When applying for a home loan, several pieces of information will be requested from the lender. These include paystubs, bank account statements, tax returns from the last two years, asset information and liability information. It is important for the borrower to provide everything that is requested, even if it is not at his or her immediate disposal.
After all information has been submitted, there may be still more things that the lender needs before approving the application. The real estate industry is one that is under very tight controls by the federal government, so everything must be in place before a closing on the sale of the home can be completed. It is incumbent on the borrower to fully cooperate and on the loan processor to work quickly in order to avoid any unnecessary delays.