5 Tips to a stressless home loan application
Buying a home can be SO stressful! Especially if you need to get a loan to purchase your new house.
I have been in this situation a few times myself, and also worked as a mortgage loan officer for over 5 years, and was able to help many clients through the transition in that role as well!
In this post I’d like to share 5 tips for a stressless home loan application. I’ll be covering:
How and why to start saving cash now
Having an idea of your credit score and why it’s important
Gathering information on assets/what is an asset?
Determining your budget and comfortable payment amount
Shopping around and how to research your loan options
So - if you’re about to take the leap into homeownership, you’re in the right place! I’m about to give you the insider knowledge you need to save you the stress!
Start Saving cash now!
If you have even started thinking about a buying a house, you should be saving money. The more money you have available to you, the better deal you’re going to get and the less stress you’re going to have while starting your home loan application.
Your down payment amount can greatly affect your home loan. It can be a factor in determining your interest rate, whether or not you have to pay private mortgage insurance, and most importantly your monthly payment.
If you don’t have any kind of high yield savings account yet, now is the time! There are a lot of options online that offer high savings rates. Also be sure to check with your local institutions! They often have promotional offers in order to compete with institutions that have more of an online presence only.
2. your credit score - what is it?
Before you go/call into the bank - have an idea of your credit score. You can do this by signing up for any online free service, (Credit Karma, credit.com, etc) or by signing up directly with Experian, also free. Experian is one of the three official FICO credit bureau’s. I would recommend an account with them as they’re going to have the closest score to what your bank is actually going to use. Credit scores are very nuanced and confusing because there are over 100 different score equations available. Experian will give you a score that is most widely used by lenders, so even if it isn’t exactly what your lender comes up with it should be very close!
Why is it important?
Your credit score is SUPER important in applying for a home loan. Your credit score, similar to your amount of cash down, can impact most importantly your interest rate. Your interest rate is basically the “price” you pay to borrow money. If you are less credit worthy, meaning you have a lower FICO score, it will cost you more to borrow the same money than it would if your credit score was higher. There is a low of 300 and a high of 850. You want to aim to be somewhere in the 700 range for best possible outcomes.
If you look at your score and it isn’t the best, don’t fret! There are ways to clean it up. Most importantly, make your payments on time going forward! It is harder to change past mistakes, but your payment history can be positive moving forward.
3. assets - make a list!
Assets are a great way to show that you can handle money responsibly. Especially if your credit score isn’t the greatest - show that you have assets! Remember that savings account we started? Write it down! Do you have a car? A motorcycle? A boat? A 401k? WRITE. IT. DOWN. Make a list of everything you can think of that has value. Even if you’re making payments on the things above, it shows that you’re willing to spend your money on something that holds VALUE. It improves your perceived NET WORTH making you less of a credit risk. While this may not help you with credit score, it definitely can help your chances of overall loan approval.
4. monthly payment budget - how much can you afford?
So many people used to come to me to apply for a loan and had no idea what payment amount they’d be comfortable with. The lender will obviously have some stipulations on how much they’re going to offer to lend to you, but you can skip so much unnecessary back and forth if you have a realistic idea of your own budget.
Make sure to sign up to get a free download of my mortgage payment budget planner by entering your email at the bottom of the page!
The planner is an easy worksheet to look over your expenses like a lender and determine what payment amount is going to best fit your budget based on your debt to income ratio. (Just a fancy way of saying what percentage of your income is taken by your bills, and how much room is there left for a house payment.)
Once you have a comfortable monthly payment amount in mind your lender can work backwards based on that number and the amount of cash you have saved to put into the purchase to determine the amount of home you can afford. Not only will you be better prepared for yourself, but your lender will love that you are informed.
5. don’t be afraid to shop around
As with anything, it pays to do your research and shop around.
Shop around for the right financial institution that can provide you with the best loan options to fit your needs. Look at banks, look at credit unions, look to private mortgage brokers, look at institutions that only offer lending. I know it can be overwhelming when you first start - I would always recommend talking to your personal financial institution first. However, if that doesn’t work, don’t be afraid to branch out!
Also, don’t only shop the institution. Shop the lender as well! All lenders in an institution can offer the same programs, BUT, and this is a BIG BUT, if you aren’t vibing with someone, and you don’t feel they have your best interest in mind - find someone else. This is already a stressful situation, you want your lender to be in your corner 100%. It should be you and the lender against the underwriter trying to figure out the best game plan to get you approved for a loan you can afford and be comfortable with.
Don’t be afraid to ask questions! Your lender should be able to have every question possible thrown at them, and come out smelling like roses! This is their job, they should be informed and if they aren’t they should be MORE than willing to accommodate getting you answers to your questions. I know the process can be intimidating but take it from me, someone who worked as a lender for over 5 years, your loan officer should be there to help you, and be happy about it. If they aren’t…find a new one! Your lender is your spirit guide to a stressless home loan application. Choose them wisely!
Conclusion
Working for a credit union for the last 8 years has allowed me to obtain this insider knowledge that I am HAPPY to share with you. I hope these tips make you feel prepared and confident to apply for your next home loan. These are the steps that I have taken personally to have a stressless home loan application process, and they’re the steps that I’ve personally recommended to my loan applicants while I was working as a lender, and now to my real estate clients.
