Anytime you’re thinking of applying for a new home loan, the process can quickly become daunting and overwhelming if you’re unsure of where to get started. Even if this is your first time applying for a new home loan, there are a few factors you’ll want to keep in mind to ensure the process goes exactly as you envision and intend. The more comfortable you are with the banking system and loan process, the less likely you’ll be to run into issues, delays, or setbacks the next time you’re thinking of investing in a new home of your own.
Income
Anytime you’re thinking of applying for a new home loan, you’ll need to keep your annual gross and net income in mind. Your income will be assessed to evaluate your ability to afford to invest in a new home, especially if you’re new to purchasing properties or if you don’t have a history of homeownership in the past. You will need to determine how much you can afford by assessing your income and any other expenses you’re responsible for aside from a potential mortgage payment and insurance that comes with owning a home.
Whenever you’re going through the process of applying for a home loan, you’ll need to have the ability to provide proof that you’re generating an income or that you have the money and/or assets available to secure the loan. The loan provider you choose to go with may require various forms of proof to demonstrate your employment or stream of income, depending on your individual situation. Understanding what’s required of you in terms of income can also help streamline the process of applying for a new home loan, even if you’re doing so on your own for the first time in your life.
Proof of Employment
When you’re ready to apply for a new home loan, you’ll also need to demonstrate proof of employment. Demonstrating your employment with a record of your earnings, income, and taxes paid can help with determining your DTI, or your debt-to-income ratio, while also providing reassurance to a loan company, agency, or officer that you’re capable of paying off the loan you receive. If you’re able to prove that you’ve maintained steady employment for years, if not decades, it’ll likely also be much easier for you to secure the home loan you’re seeking.
The more aware of your income and DTI you are, the easier it’ll be for you to calculate the potential down payment you might require for the homes you’re interested in. Understanding how proof of income, employment, and DTI work can help you navigate the process of applying for a loan once the time comes. The more informed you are regarding the process of taking out a home loan, the better your chances are of receiving approval.
Credit Score
When you’re thinking of submitting an application for a new home loan, you’ll also need to remain cognizant of your current credit score. Your credit score is one of the most vital components of applying for any type of loan or financial assistance you might be seeking. You can check your current credit score by visiting any trusted credit agency or by using a trusted credit score website online that’s encrypted, protected, and endorsed by larger agencies, such as the BBB.
If you don’t have any credit to your name, you’ll want to spend a bit of time establishing credit. To do so, you can begin by applying for secured credit cards. Applying for a secured credit card will allow you to begin the process of building credit by placing money into a secured account while paying off your purchases regularly.
If you don’t have great credit or if your credit is currently listed as Fair or Poor, you’ll likely find it much more challenging to receive the loans you’re looking for when the time comes to submit your application. Taking a bit of time to repair and rebuild your credit score is always advisable for the best chances of receiving the home loan you desire once you’re ready to take the leap. The more financially aware you are of your spending, credit score, and expenses, the easier it’ll be for you to navigate any investment you’re planning to make, including a new home.
Current Interest Rates
It’s essential to monitor the current interest rates if you’re thinking of investing in a home, big or small. Regardless of the amount of income you’re generating or the money you’ve set aside for a down payment, you’ll want to follow the global economy and real estate markets to determine when it’s the best time for you to invest and buy. Finding a competitive lender is a way for you to ensure the lowest interest rate possible, although you’ll also need to monitor the rates that are set by the Fed, or the Federal Reserve.
Typically, interest rates between 2%-3% are considered great, especially when it’s time to invest in a home. If the average interest rate is higher than 2%-3%, you’ll want to determine if the time is right for you to invest in your new home. You will also want to learn about different loan types to determine if you’re interested in a rate that’s locked in or can be adjusted at a later date.
Loan Type and Term
If you’re someone who is committed to applying for a new home loan, and you’re excited to do so, you’ll want to learn as much as possible about the various loan types and terms you may have to choose from when the time comes. In general, loan terms typically range between 15-year, 20-year, and 30-year loans, and will vary depending on whether your loan type will be fixed or if the rate will be adjustable. You’ll want to consider how much you’re willing to pay off the loan monthly and how much you can afford based on your savings and any income you’re currently generating.
If you want to pay off your home loan as quickly as possible, you might want to go the route of a 15-year loan. However, keep in mind that if you choose to go the route of a 15-year loan instead of a 30-year loan, you’ll need to pay significantly more in your monthly payment. When you go the route of a shorter loan, you might also be required to pay less in interest. Working with a loan officer you can trust is a way for you to determine which path is right for you based on the vision you have for the home, affordability, and current interest rates that you qualify for personally at the time.
Down Payment Required
Anyone who is interested in applying for a new home loan will need to consider how much they can afford to put down as a down payment for their new property. The bigger the amount you’re able to put down on the total cost of the home, the lower your monthly mortgage payments will be once you’re settled in.
Pre-Approval
Seeking pre-approval is always advisable for anyone who has a genuine interest in investing in a new home. Completing the pre-approval process is a way for you to not only ensure your own capability of investing in a home, but it’s also a way to show prospective sellers that you’re serious and a qualified buyer. Taking the time to seek pre-approval will also help you feel much more confident once you begin the house-hunting process, even if your doing so for the first time and on your own.
Closing Fees and Costs
When you’re investing in a new home, you will need to keep potential closing fees and costs in mind, as these can quickly add up unexpectedly, especially if you’re purchasing a home for the very first time. Some lenders are more willing than others to work with clients to help with covering the costs of closing a sale and any origination fees that may be incurred during the process. If you’re thinking of applying for a home loan, you’ll want to take a bit of time to get to know more about the loan providers you’re interested in going with and any potential fees and loan costs you may also need to cover once you find the home of your dreams.
Costs of Future Repairs and Updates
You’ll want to estimate any residential roof repair services you might require before you apply for a new home loan, especially if you want to conduct repairs and updates immediately before you settle in. Whether your new home needs air conditioning repairs, a new HVAC system, or brand-new windows, you’ll need to keep these issues in mind before you begin submitting applications for a loan. If possible, you may be able to apply for a larger loan that will allow you some room for home improvements once you own the property.
Exterior Property Updates Required
Tending to garage door repair service needs and updating the driveway or sidewalks that surround a residential property may be necessary once you’ve purchased the home and moved in. Because exterior property updates can quickly add up in costs, preparing in advance and planning for them by applying for the appropriate amount of funding is ideal. Once you begin working on updates on your home’s driveway or sidewalks, you’ll want to work with asphalt companies near you for the best outcome possible.
Siding and Home Exterior Work
If you want to take care of the exterior with the loan you received for your new home, you’ll want to conduct an inspection of the outside material first. Whether your home was built using traditional brick and stone or its exterior uses modern vinyl, conducting siding and exterior updates can all be included in the loan you receive. Once you decide to update the exterior of your new home, you can do so by contacting exterior painting contractors who specialize in paint jobs.
Electrical Work and Updates
Conducting thorough inspections of a residential home, including its electrical wiring, is always advisable before moving into a new residence. If you’re investing in a new home, you’ll want to work with local residential electricians to conduct an inspection of the properties you’re thinking of placing an offer on. Residential electricians aren’t just experienced, but they’re also licensed and insured to protect you from potential shocks, injuries, or fatalities when conducting an inspection on your own.
It’s essential to always hire a licensed, certified, and insured electrician anytime you plan to conduct work or inspections on your home’s electrical sytem. A licensed and insured electrician will also prevent you from financial and legal liabilities that are commonly associated with shock injuries, fatalities, and electrical problems you encounter after the job is done.
Remediation Service Costs
From finding a local roofing contractor to enlisting pest control services, consider the type of remediation solutions your new home will require. Taking care of pest control services can quickly add up, which is why you may want to calculate them in advance before applying for a new home loan. When you know what to expect in terms of remediation services, you’re less likely to feel caught off-guard.
Roofing Repair Needs
If you’re going to apply for a new loan for a home, and you’ve found the home of your dreams already, determine if you’ll require any more roofing services before choosing how much money you’ll need. Roofing is one of the most important aspects of a home, which is why it’s crucial to prepare for potential repairs and even replacement jobs before moving into a new home, especially if the home is older or not well-maintained.
When you’re planning to apply for and take out a new home loan, planning in advance will help streamline the process as best as possible. Whether you’re interested in a new home loan for a primary residence or you want to expand your real estate portfolio, you can do so once you know how the loan process works and how you can make it work for you. With the right plan of action and a financial institution that’s willing to work with you, move forward with the process of applying for any type of loan you require for your next residential investment.
