5 Crucial Steps to Take Before Applying for a Home Loan
When you’re looking to purchase a new home, one of the first things you’ll need to do is apply for pre-approval for a home loan. There are certain steps to take before you apply, however, to ensure that your loan application is successful. Here are five crucial steps to take before applying for a home loan.
1. Check Your Credit Score
The first step you should take before applying for a home loan is to check your credit score. Lenders will use your credit score as one of the determining factors for whether or not they will approve your application, so you want to make sure that your score is in good shape. You can get a copy of your credit report from any of the three major credit bureaus ( Experian, TransUnion, and Equifax), and use this to find any errors or discrepancies that could be negatively impacting your score.
2. Pay Down Your Debt
If your credit score is less than stellar, or if you have high levels of debt, now is the time to start paying it down. Most lenders will want to see that you have a handle on your finances and that you are capable of taking on a new loan responsibly, so start paying off any outstanding debt you have before applying for a home loan.
3. Save for a Down Payment
Most lenders require a down payment of at least 5% of the total cost of the home. That means that if you’re looking to buy a home that costs $200,000, you’ll need to have at least $10,000 saved up for the down payment. It’s important to have this money saved up before you start applying for home loans, or you may risk not being approved.
4. Shop Around for Rates
Lenders offer different interest rates on home loans, so it pays to shop around. Compare rates from different lenders to make sure you’re getting the best deal for your loan. Don’t forget to look for any additional fees or costs that may be associated with the loan as well.
5. Consider a Pre-Approval
Doing a pre-approval is a smart move if you’re looking to buy a home in the near future. A pre-approval will give you an idea of how much money you can borrow and what your interest rate is likely to be. It also helps show sellers that you’re serious about purchasing a home, and may give you an edge in a competitive housing market.
Taking the time to go through these five steps before applying for a home loan can help ensure your application is successful. Be sure to do your research and shop around so that you get the best deal for your loan.
