One of the first things you learn in Economics is the difference between need and want. Need is something that is essential to survive while want is the flamboyant brother of need which is necessary to enjoy the luxurious pleasures of life.
There are 3 basic needs in Economics: food, clothing and shelter. While food definitely holds the most important place in the hierarchy, shelter is something that protects one from the atrocities of the outer world.
USA is among the most developed countries in the world, yet the general amount of homeless people in the country is a prevalent concern within the masses. However, affordable mortgage loan deals have made it quite easier to own a house in the USA—hence, fulfilling the ‘shelter’ need criteria.
Even before buying a house, the first thing to look up is mortgage prospects. Like every other forms of loans in the USA, a credit score is directly proportional to you getting pre-approved for a loan. Also, a good bank balance and healthy income are the other pillars that forge up your chances of pre-approval.
However, if you are on the downside of having a poor credit score, independent but erratic income, and not much to show for in your bank account, then the wise thing to do would be to start processing for mortgage preapproval a year beforehand.
There will be meetings with mortgage loan agents in order to establish your case. These days the market is so competitive that housing agents don’t even show you apartments if you don’t have a preapproval for a mortgage.
All good things in life arrive after a bit of hard work, so make sure you have all the documents that give proof of your income and how much debt you have and also if you have any inherited money. Apart from collecting documents, you will also need a lot of money for down payment, closing costs and more than a year’s worth of taxes and insurance payments.
There is a lot of debate as to how much percentage of down payments is required in order to obtain a loan. While 20% is marked as the de facto, you can buy a house with as little as 3.5 percent down with a Federal Housing Administration mortgage, 5 percent with a conventional mortgage or nothing down with a VA loan available to military veterans.
However, this goes without saying, the lower down payment you make the higher will the monthly payment be. Also, if the down payment you make is less than 20%, you are required to pay a private mortgage insurance (PMI) known as mortgage insurance premium.
For example, the PMI can add about $92 a month to $475 principal and interest payments on a $96,500 loan to buy a $100,000 house. With 20 percent down, the principal and interest payment on that house is only $373 a month, at 4.25 percent.
Here are some guidelines you could follow in order to smoothly obtain a loan…
See a mortgage officer before looking at homes: The reason why this is important is because it will help you know whether you have any withstanding credit problems that need to be addressed. Also, this will help you set your budget limit for the houses to look into.
Having good credit habits: Almost every person in the USA takes a loan to acquire things. So if you already have taken a loan for something else, make sure you make the monthly payments before the deadline and with consistency as failing to do so lowers your credit score and hence puts your chances to obtain a loan under scrutiny.
Clear debts: This borders on captain obviousness, but paying off debts as much you can, will help you lower the debt-to-income ratio. Debts like student loans, car loans, business loans and so on are looked at by lenders before lending you money. So if you already owe a lot of money, it is time to reduce it down as a high debt-to-income ratio is problematic when it comes to acquiring a loan.
Avoid buying things on credit: A new home is brilliant place to setup new furniture, so the urge to buy them with credit will be there. However, you would be wise to resist such urges like Vulcan’s use Kolinahr to repel theirs as buying things on credit before clearing off the loan debts endangers the deal.
A strong work-history: In this case, if you are someone who works in a relatively big post in a full-time job, then your work-history will not be used a point of reference by the lender. However, if you are part-time worker or someone who doesn’t work in a position that is considered important by the materialistic world, then you must have a solid work background in order for the lenders to find confidence in lending you money.
Don’t sit with just one lender: When you go out shopping for clothes, you don’t just go to one shop and check for clothes. Similarly, while going out in the market for loan lenders, it makes sense to meet with more than one lender and check what each one has to offer since not all of them will provide the same thing.
Look for closing agents: The thing about hiring a closing agent is that it will save you a lot of closing costs like document preparation, legal fees and title insurance in a state where these costs are high. Every penny matters, so look for a good closing agent to save some dollars.
Mentally prepare yourself for more struggles if you are self-dependent: The chances you getting a loan becomes lower if you don’t have a fixed amount of every month and own a small instead. In most of these cases, your business needs to be at least 2 years old for it to be considered by the lenders. Most self-dependent professionals show up enough expenses on their taxes to make their attuned gross income lower than their actual income. The lender will consider that lower number is your income.
So these are some of the guidelines you can follow to obtain a mortgage in the USA. If you have enough money to cover all costs, a healthy credit score and a low debt-to-income ratio, then you are more than likely to qualify for a mortgage loan.