Whether you’re buying your dream home or refinancing, it’s an exciting journey. However, it’s wise to gather all the information and advice you can get to ensure you’re making the most of your loan potential and that you secure the funding you rightly deserve.
Before you step into a financial institution, here are a few simple steps to make the loan application process easier and more efficient.
Understand What Your Credit Score Can Do for You
A solid place to start your loan potential research is to determine your credit score and understand its impact on loan procurement. Your credit score enables lenders to assess your ability to repay a loan. Scoring higher on a scale of 300 to 850 gives you more leverage to negotiate better rates and terms.
Digging into your credit report is a great first step. It shows where you stand and highlights areas where you can improve. Some recommended financial decision-making changes, like paying off outstanding debts, avoiding late payments, and limiting new credit inquiries, could help you improve your credit score. And if your score isn’t where you’d like it to be, bringing a co-signer into the picture helps your application shine. If you default, a co-signer agrees to take on the loan, lowering the lender’s risk.
Assess Your Financial Health
Have you heard of the term Debt-to-Income Ratio (DTI)? It measures the portion of your monthly income you spend paying off debt, reflecting on your ability to manage debt payments while covering your living expenses. A DTI of 36 or lower indicates a healthier financial situation, and lenders naturally look for a lower DTI while evaluating your financial profile for loan approval.
To further display financial prudence and stability, one way of reassuring lenders of your ability to manage financial shocks without defaulting on loan payments is to have savings buffers or emergency funds for unexpected expenses. Having a savings safety net for those “just in case” moments (medical bills, sudden job loss, car repairs, etc.) makes your financial profile appear healthier to lenders.
Look at Different Types of Loans and Lenders
When choosing loans and lenders, it’s like shopping for the best pair of shoes—you must find the right fit. Especially while shopping for a home loan, it’s a good idea to be aware of the different types of loans and specifically understand the difference between fixed-rate and adjustable-rate mortgage loans.
Remember to shop around for lenders, too. Whether it’s a traditional bank, a credit union, or an online lender, each offers different advantages. Choose a traditional bank if you’re seeking stability and competitive rates (for those with good credit scores). Credit unions are the way to go if you need more personalized service and lower rates. Online lenders are often more flexible with credit requirements and can offer quick approvals.
Work on Strengthening Your Loan Application
As a last step, whip your loan application into shape! Once you understand your lending options, start collating a list of your assets, liabilities, and other paperwork like tax returns, income proof, and employment verification. Then, create a compelling proposal outlining your need for the loan and how you plan to repay it. A strong application is like a strong handshake—it leaves a good impression.
Do you need help with your loan? Don’t worry! Our dedicated team at High Quality Mortgage will guide you through the best home loan options for your unique needs and financial goals. Talk to us now!