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How to Make Sure You Qualify for a Home Loan

August 19, 2015

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If you are looking to purchase one of the beautiful Columbus, GA homes for sale you may be planning on getting your finances in order to qualify for a loan. Planning ahead can help to make the loan process a lot easier. Ideally you should start the financial planning process at least a year prior to purchasing. This will give you time to save money by developing a budget and spending plan to help build credit. This will prove to your lender that you are responsible and will repay your loan. Owning a home requires stable finances in combination with the following:

Spending Plan

First of all it is important for you to determine if you can afford to buy a home now. If the answer is no then it is time to start saving. If the answer is yes then calculate your monthly housing payment by including the following: principal, interest, property taxes and homeowner’s insurance. This should be a maximum of 33% of your monthly gross income. Keep in mind you may have home owner’s association monthly fees as well as mortgage insurance.

Solid Employment History

This doesn’t mean that you cannot switch jobs from time to time but lenders like to see at least two years worth of pay history. Even if you have had multiple jobs within the 24 month period you will need to detail the dates of each job to show that there were no gaps. So if you are a “job hopper” you may have a more difficult time convincing a lender that you have a stable enough income to pay off your loan. Also keep in mind that if your job situation changes, even if it is a promotion, during your loan process it is important to communicate this with your lender.

Low Debt

Try to reduce each line of credit you have by at least 25%. You want to lower your debt-to-income ratio which compares the minimum payment on all of your recurring debt with your monthly gross income. This number should be 43% or less.

Credit Score

Your credit score is a three digit number that is calculated from your credit report. Lenders look at this number to determine your creditworthiness for a mortgage, loan or credit card. This number will help the lender to decide if you are approved for the loan as well as your interest rate on the loan. It is important for you to check your credit report prior to applying for the loan because there may be items on the report that you may want to dispute and you don’t want any surprises when you meet with the lender. To improve your credit score you need to pay your bills on time and reduce the amount your owe.

Here is a range from excellent to bad credit scores according to credit.com:

Excellent Credit: 781 – 850

Good Credit: 661-780

Fair Credit: 601-660

Poor Credit: 501-600

Bad Credit: below 500

Pre-Approval

Get a loan pre-approval before you get serious about shopping for a new home. You will want to consult with a lender and apply for a mortgage so you can get a loan commitment from them for a specific amount. This will give you an idea of what homes are within your price range based on the cash you have on hand as well as your pre-approval amount.

Save

Savings time! You will need 3% to 5% of the home price for a down payment as well as another 2% to 3% for closing costs unless the owner is paying for them. It is also good to have a few house payments on reserve. There are a lot of additional costs after purchasing your new home so putting additional money aside for things like window treatments and landscaping items will be very helpful.

Keeping these things in mind will help you to qualify for the loan on one the Columbus, GA homes for sale.

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This post was written by Rose Anne Erickson

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