Qualifying for a Home Loan
There’s a point in everyone’s life when you ponder whether or not you want to own a home, or continue to rent until another opportunity comes along.
But what if you decide that you’re ready to buy, only to discover that you don’t qualify for a home loan?
In the moment, it’s easy to disregard homeownership as a worry for the future, not something you ought to prepare for when you’re still content to rent. There are some steps you can take now, though, to ensure that when you do want to invest in your own home, you’ll be able to get the financial assistance you need to make it happen.
Build your credit
This might sound counterintuitive when we’re talking about financial stability, but you need to build your credit history before you apply for a home loan. That doesn’t mean you should go out and rack up a lot of debt, but that if you keep a healthy credit score of at least 550, you’ll show lenders that you can handle the responsibility of making regular payments on a large sum.
Your credit score can be helped or hindered by a number of things: credit cards, yes, but also student loans, payments on a car, and more. By consistently chipping away at your debts without missing a deadline, and even by paying more than the minimum amount due if you can, you boost your score and make it that much more likely that you’ll get decent rates and offers from your home loan provider in the future.
Just because you’re applying for a home loan doesn’t mean that you won’t have to put up any initial contribution up front. In fact, it’s highly advisable for you to set aside a decent down payment well before you even begin browsing the market for your next home. The simplest way to help you with this planning to-do item? Make (and keep!) a household budget that allows you to set some of your income aside each month. Even if it isn’t a sizable percentage, each addition to your fund is one step closer to being able to buy your house later on when you’re ready.
Another good practice that will help you prepare for that home loan application is keeping important documents, even after you think they won’t be of any use to you: W2s, bank statements, tax returns from the last couple of years, a comprehensive list of your debts and assets, additional income and insurance documentation, legal paperwork for key events like a marriage or divorce. All of these can play a significant role in painting an accurate picture of who you are and how trustworthy you would be if granted a home loan, and should be kept on hand throughout the buying process.
Feeling overwhelmed yet? Don’t worry – once you are ready to start looking for a home to buy, a lot of the pressure can be alleviated simply by having a team of local experts on your side, helping you do the legwork and check everything off your to-do list. If you’ve got your eye on southeastern North Carolina, contact the Michelle Clark Team and learn more!