Buying a new house is a major step to take that needs proper and careful planning. Aside from it will require your time and patience in finding the right, comfortable, and livable place for you, it will also require you to spend a considerable amount of money to close the deal of homeownership.
Some people take time, saving money for their future homes, and some apply for a mortgage to help them secure the ownership of their dream house. Like any other type of loan, a mortgage application needs approval from the lending company before loaning you the amount you intend to borrow. Thus, before deciding to apply for a mortgage, it would be best to consider the following financial factors to ensure fast approval.
Credit Score
When you apply for a mortgage, the lending company will require you to submit some personal and financial documents that they will evaluate to check your credit standing or credit score. Your credit score is one indicator that may determine whether you are qualified to be approved for your mortgage loan application. The higher your credit score, the better. Having a higher credit score means having a higher chance of getting approved by the lending company.
Your credit score is based on several financial factors, including your number of open accounts, your payment history, your credit history length, your credit utilization, your new credit, and your credit mix. These factors can greatly affect your credit score. If you want to know more about your credit score, you may visit some online personal finance websites such as Crediful for more relevant personal finance information.
The Type Of Mortgage
There are several reliable lending companies and financial banks that offer any loan type, including a mortgage. A mortgage is a type of a secured loan that can help you purchase or refinance a house or any property, with this property acting as collateral to be forfeited or renounced when you fail to pay your debt on time.
There are two types of mortgages, including the fixed-rate mortgage and the adjustable-rate mortgage. On the one hand, the fixed-rate mortgage allows you to pay the same interest rate throughout your loan term. On the other hand, the adjustable-rate is the type of mortgage that has an interest rate that changes over time, based on the market condition, after the initial specific number of years of your loan term.
Knowing which type of mortgage suits your needs and your capability to pay would help you decide which lending company offers the best loan features, terms, and conditions. Before you apply for a mortgage, it is always better to shop around for a lending company’s mortgage offers and compare each to ensure that you are getting the best deal.
Down payment
Before you apply for a mortgage, you must first secure your down payment for the house. The down payment is your initial payment in purchasing any expensive property. It is also one of the lenders’ indicators to know if you can afford to repay your loan on time.
When putting up your down payment, you may consider securing at least 5% up to 20% of your house cost and proceed to borrow the 80%. Putting down a bigger down payment for your house can lower your monthly loan payments. It can also help you get approved for the loan despite having a bad credit score.
Income And Work History
Your lenders would require you to submit proof of employment or income to know if you can afford to pay your loan on time. They would like to check if you have a stable income and job for the last two years. Having a stable job that does not have a termination date increases your chances of being approved for your mortgage application.
Your Debt-To-Income Ratio
This ratio is calculated by getting the sum of all your monthly payments on debt which is then divided by total monthly income. Your monthly gross income is determined by the total amount of income you receive before deducting tax and other payments.
Your debt-to-income ratio is as essential as your credit score in determining your chance of getting approved for your mortgage application. By evaluating your debt-to-income ratio, your lenders will know if you can still afford to have another debt. The lower your debt-to-income ratio percentage, the higher your chance of getting approved for that mortgage application.
Takeaway
Buying a new house is a practical and worthwhile investment. It is also one of the adult’s utmost dreams. To reach that dream, you may either save money until you reach the house cost or opt to apply for a mortgage to purchase that house. Before applying for a mortgage, you must first ensure that you secured the factors mentioned above. In that way, there will be a bigger chance for you to get approved for that mortgage.
