Are you thinking of buying a house? If so, congratulations! Owning a home is one of the most important milestones of your life. But houses are expensive. And unless you have saved up a lot of money, you will need to take out a loan to finance this expenditure.
That’s why it’s essential to get your finances in order before applying for a loan. Doing so will increase your chances of being approved for a loan and getting the best possible interest rate.
Not sure where to start? Here are some tips on how you can improve your finances before applying for a home loan:
1. Know Your Credit Score
This is one of the first numbers your lenders will look at when determining whether or not to approve your home loan. It shows lenders how likely you are to repay any debts you take on.
Experian, Equifax, and TransUnion are three major credit reporting agencies from which you can get your credit score.
Once you have that, you can start working on improving it by paying off any outstanding debts.
2. Know Your Debt-To-Income Ratio
Your debt-to-income ratio (DTI) is another number that lenders will look at when considering you for a loan. You can calculate it by adding all your monthly debt payments and dividing it by your gross income.
For example, let’s say you have $500 in monthly debt payments, and your gross monthly income is $3,000. That gives you a DTI ratio of 16.7%.
Most lenders prefer a 36% or less ratio. If yours is higher than that, don’t worry – options are still available. You may have to make a larger down payment or find a cosigner for your loan.
To calculate your DTI ratio, use this debt-to-income ratio calculator.
3. Get Pre-Approved For Your Loan
The next step in getting your finances in order before applying for a home loan is obtaining pre-approval from a lender. Doing so will give you an idea of what kind of interest rate and loan amount they’re offering based on your income level and employment history.
Keep in mind that pre-approval is not the same thing as final approval. Once you’ve found your dream home and have signed all the necessary paperwork, the lender will still need to assess the property before extending final approval on the loan amount.
However, having pre-approval gives buyers much stronger negotiating power when dealing with sellers since they can show they’re serious about purchasing their property.Â
Our Real Estate Agents In Naples, FL, Can Help
Our real estate agents are prepared to find the appropriate loan program for you that offers low down payments and competitive rates. Our financing experts are ready to help you every step of the way.
We also offer our clients a smooth process whether they’re looking to buy or sell a house.
Take a look at our listings or contact us to get started today.