What You'll Need to Apply for a Home Loan
Between compiling paperwork, submitting your application, and dealing with the bank, financing can be complicated and confusing.
If you’re applying for your mortgage or a mortgage pre-approval, congratulations! That’s the first big step in securing your dream home. But there are a few hurdles you’ll need to overcome first. Between compiling paperwork, submitting your application, and dealing with the bank, financing can be complicated and confusing.
But don’t worry. Instead of feeling lost and overwhelmed, learn more about the factors that make the biggest impact on your application so you can go in feeling confident and prepared.
Credit Score
Like most types of loans, your credit score plays an important factor when you’re applying for your home loan. For lenders, your credit score is an indicator of how you’ve managed your money—and specifically, your debt—in the past. It helps them understand if you’re a reliable borrower, so they can ensure you’ll pay back your mortgage on time.
Be sure to review your credit before submitting your application. Double check that everything on your credit reports is accurate, and find your current score. Typically, you need at least a 620 for approval—but the higher your score, the better interest rates you’ll receive.
Debt-to-Income Ratio
Because your mortgage debt likely won’t be the only debt you have, lenders want a complete picture of how much money you owe before they commit to lending to you. They’ll take a look at your full debt load, from credit card balances to outstanding student loans. They’ll then compare the value of your total debt to your overall income. This helps give them a big-picture understanding of whether or not you’ll be able to afford your monthly mortgage payments.
Your debt-to-income ratio, or DTI, should be 36% or below when applying, according to Fannie Mae. That also means that it’s best to pay off any big debt balances before submitting your mortgage application.
Your Downpayment
The more you put down on a house, the smaller your mortgage will need to be, so banks take a close look at the size of your downpayment. 20% down is typically considered the best approach, but some lenders will approve mortgages with downpayments as low as 5%.
Your downpayment also directly impacts your debit-to-income ratio, so the more you can put down comfortably, the more it increases your odds of an advantageous interest rate. Putting at least 20% down also allows you to waive mortgage insurance, lowering your monthly overhead and saving you money in the long run.
Sale Price & Loan Size
A more expensive home also equals a larger loan and larger monthly payment. When applying, the bank will evaluate your DTI, your downpayment, and the total amount you’d like to borrow to get a big-picture idea of your total costs.
A general rule of thumb is that your monthly mortgage payment shouldn’t exceed 28% of your total income to secure approval from your bank.
If you’re ready to take the next step and build your dream home, contact Atmos today! From finding the perfect lot to handling financing, Atmos will guide you through every stage to make the process easier and more affordable than ever before.
