If you’re ready this you’ve probably been doing some research on getting a home loan. While there are dozens of factors to getting a home loan, only 3 are surefire ways to lock in that loan. Here they are.
#1. Have a credit score of at least 680.
How do you know that you have a credit score of at least 680? Get a copy of your credit history, score and report. If it is lower than 680 you’ll need to spend some time increasing that credit score. Look over the report to make sure that there are no errors or mistakes or any outstanding balances that you have either forgotten about or didn’t even know were out there. Pay off as much is you can leaving as much available credit as possible. If your credit score is lower than 600 you may need to take at least 3 to 6 months to improve this credit score. Note: some mortgage lenders can offer a home loan to those with credit scores lower than 680 but you may have mortgage insurance and a higher interest rate.
[Read more: How to Increase Your Credit Score]
#2. Have enough money for an earnest money deposit and a down payment.
Your earnest money deposit will be anywhere from .5% to 3% of the purchase price of the home. It’s important to have this liquid funds available in order to “hold” the property once you’ve put in an offer. The higher your earnest money deposit the more serious sellers know you are about buying the property. You will also need a down payment. If you’re purchasing another home and selling your existing home, you may have equity that can be rolled over into the down payment. If not, it’s important to have at least 3.5% of the purchase price as a down payment for FHA loans and anywhere from 10% to 20% on conventional loans. Note: there are also certain programs that may provide you with a .5% down payment as the additional 3% can be rolled into the home price but check with your lender because there are regulations and eligibility restrictions on these types of loans.
#3. An appropriate debt to income ratio.
Lenders do not like borrowers spending more than about 28% of their income on housing. If you have too many loans, outstanding credit card debts or unsecured debts out there you may not have enough income to support a mortgage. If you have more than 43% of your income going towards debt including your housing, it might be more difficult to get a loan. Calculate all of your income and then determine how much debt you have going out on a monthly basis. If the ratio is over 43% of your income, it might be beneficial to lower that percentage before applying for a home loan.
If you can perfect these three items you’re almost assured a home loan, but again, there are dozens of factors that come into play. It’s always best to sit down with a lender and discuss your options.