If you’re considering buying a new home, you probably need a mortgage before you can start the journey to homeownership. Fortunately, millions before you have gone down this path—and survived every step of the mortgage process.
You don’t have to be a financial expert to make it happen. If you want to improve your odds of qualifying for a home loan, there are some important parts of the mortgage process to consider. Before you apply, consider these tips.
It’s important to pay bills on time.
Your credit score is a critical part of qualifying for a mortgage, and credit can be largely influenced by whether bills are paid on time. Skipping payments or paying late can negatively impact a credit score. If you are prompt about paying bills and this is reflected by your credit score, then you have taken a key step toward getting approved for a loan. If you have room to improve, consider setting up autopay to make sure you’re always paying on time — even when you forget.
Changing jobs could have an impact.
Another thing that lenders look at when determining your eligibility for a loan is income. Lenders look for income that is stable and sufficient to cover monthly house payments. Holding a steady job will likely have a positive impact on eligibility, while gaps in employment might not.
Opening or closing new lines of credit could also affect your application.
Lenders consider your debts during the mortgage application, and because of this, opening lines of credit could negatively impact your debt-to-income (DTI) ratio—a person’s total monthly debt divided by total monthly income. But if you have current lines of credit open, it’s often best to keep them open with no balance rather than closing them.
There are several types of loans.
Mortgages come in many different forms, and each can be useful in different situations. There are several ways to determine which home loan is right for you, and here are a few things to know:
- Fixed-rate loans are those whose quoted interest rate stays consistent over the life of the loan.
- Hybrid adjustable-rate mortgages (Hybrid ARMs) are those wherein a rate is fixed for a specific time period (called the “initial rate period”) but could then fluctuate afterward. Hybrid ARMs have an initial rate period of 3, 5, 7 or 10-years, followed by an adjustable rate period.
- 15-year loans have higher monthly payments than 30-year loans but are generally paid off faster. 30-year loans have lower monthly payments than 15-year fixed rate mortgages but generally take longer to pay off.
- Government-secured loans, such as FHA or VA loans, are also available to certain borrowers.
Each type of loan has its benefits and drawbacks, and the best loan for you will depend on your unique needs. Also keep in mind that interest rates are not everything when it comes to mortgages; the big picture is also important to consider. Talk to one of Mr. Cooper’s expert mortgage professionals to learn more and get help weighing your options.
Getting Pre-Approved is a great first step.
The type of loan that works best for your situation depends on many factors, and when you start house-hunting it helps to know in advance how much you qualify to borrow. Getting Pre-Approved with Mr. Cooper involves a quick, no-commitment phone call—and comes with the benefit of expert guidance on what next steps to take. It’s not the same as a Verified Approval, but it can get the ball rolling on your journey to closing on a home.
Your mortgage lender is a key resource.
Throughout each step of the mortgage process, you’ll probably have questions (even if you’ve bought a home before). Reaching out to a mortgage lender like Mr. Cooper is a great way to begin the process of applying for a home loan. Learn more about your options for locking in great loan terms and get in touch today.