Unless you happen to be sitting on a large financial "nest egg," you'll probably need to take out a mortgage in order to buy a home. According to a report by the National Association of Realtors, the median sale price of homes in the United States in 2014 was $188,900. The housing market has recovered from nearly all of its loses during the 2006 crash, signaling a positive trend. With this recovery, however, comes tighter restrictions regarding mortgage loans. So, what steps can you take to increase your chances of qualifying for a mortgage?
Tips for Qualifying for a Mortgage
How Much Do I Need for a Down Payment?
Prior to the 2006 housing market crash, it wasn't uncommon for banks to issue mortgages without a down payment. However, this has since changed, with most lenders now requiring some down payment from prospective borrowers. Ideally, you should aim for a down payment of 20% of the total loan. If you can't afford this, however, as little as 10% can prove helpful in getting approved.
Preapproval vs Prequalification: What's the Difference?
It's important to understand the difference between preapproval and prequalification when seeking a mortgage. Prequalification is easier to obtain since it doesn't require your social security number or credit history. Preapproval, on the other hand, requires personal information such as this, making it more meaningful and significant when obtaining a loan or qualifying for a mortgage.
What Credit Score Do I Need?
Lenders will look closely at your credit history and credit score to determine whether or not you are a suitable candidate for a mortgage. Most experts recommend a credit score of 720 to obtain a "favorable" mortgage with a good interest rate.
Can I Get a Mortgage with a Bad Credit Score?
If your credit score is lower, however, you may still be able to obtain a mortgage. Credit scoring is a system created in the 1950s, using a range of 300 to 900 to denote a person's credit quality. It's more difficult to obtain a mortgage with a low credit score, but it's still possible. First and foremost, you should go through your credit history to ensure there are no outstanding errors. If you find any discrepancies, you should dispute them with the respective credit company. Next, you should consider mortgages for individuals with bad credit, such as the Federal Housing Administration (FHA), which lends money to individuals with low credit scores (down payments are smaller as well).
Will My Employment History Affect my Candidacy for a Mortgage?
Absolutely! In addition to looking at your credit history and score, lenders will also look at your employment history. If you've had a stable job for the past several years, lenders will be more likely to approve you for a loan. This is why it's a good idea to maintain a stable job prior to applying for a mortgage.
This article was brought to you by Premier Island Properties - A full service real estate firm serving Hilton Head Island and Bluffton, South Carolina. For more real estate news, information, and interesting facts about the Lowcountry, please visit our website.
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