3 Tips On How To Prequalify for a Home Loan
Not sure if you know how to prequalify for a home loan? You’ve made the decision to dive into the world of home ownership. As a result, there is so much to learn and do, but the most important is securing financing.
A housing loan differs from a typical personal loan and comes with additional responsibilities.
Before you begin your search for the perfect home, you will want to look into getting pre-qualified. Moreover, this step will look at your finances and determine how much money you can borrow.
Continue reading for three tips on how to pre-qualify for your new home purchase.
1. Get Your Credit in Order
Before you look for a lender to see if you can pre-qualify for a housing loan, check your credit.
Each year consumers can receive a free credit report from the top credit bureaus. Often, there is a charge for your credit score so prepare to pay a few dollars for the information.
Here is how you can contact them:
Equifax – www.equifax.com. P.O. Box 740241. Atlanta, GA 30374-0241. 1-800-685-1111
Experian – www.experian.com. P.O. Box 2104. Allen, TX 75013-0949. 1-888-EXPERIAN (397-3742)
TransUnion – www.transunion.com. P.O. Box 1000. Chester, PA 19022. 1-800-916-8800
Review the Reports and Contest Incorrect Information
Your credit history will play a huge part in whether you qualify for a loan or not. It will also affect the interest rate you receive.
If there is incorrect data on the reports, file a request with the bureau reporting the information to have the discrepancies removed.
2. Determine What Type of Housing Loan You Want
There are different types of mortgage loans you can use to purchase a house. In fact, each has its own pros and cons. Consequently, here are some popular loan programs.
Conventional – This is the most common home loan because it is less restrictive, however it may require a bigger down payment.
Federal Housing Administration (FHA) – Popular among first-time home buyers, FHA loans, backed by the federal government require mortgage insurance to protect the lender if you default on the loan. They also require lower down payments.
USDA – These loans are backed by the United States Department of Agriculture. They are geared towards individuals who may not qualify for traditional financing. They also do not require a down payment.
VA – VA loans are mortgage loans extended to active-duty and retired military personnel, as well as surviving spouses. Above all, these loans are backed by the Veterans Administration.
3. Structuring Your Loan
In addition to determining which housing loans you may qualify for, you will also need to consider how you want your loan structured.
Fixed vs. Adjustable Rate
A fixed rate mortgage means you will pay the same interest rate throughout the full term of your loan.
Adjustable Rate Mortgage (ARM) usually has lower rates than fixed rate mortgages for the first five years. The rate will then increase. ARMs are riskier than most loans.
The next consideration is repayment years. Mortgages typically come with 15 or 30 year terms.
Now You’re Ready to Get Pre-Qualified
Now that you know more about how to prequalify for a home loan and understand the loan process, you can start your home-buyer journey.
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