Securing a home loan can be daunting, especially in the initial phases of your search – before you have even decided on what loan you want. We’ll teach you how to fix your credit, decide on a price, and shop around for a loan. Sometimes, this can be the hardest part of the process.
Before you look for home loans in Redding, CA
- The first step is to be prepared: When you first talk to a mortgage lender, you may expect to be grilled a bit. They’ll want to see recent pay stubs, tax filings, and bank account statements. In general, the more documents you have with you, and the more you know, the easier the process will be. That said, you don’t have to be afraid of contacting a lender until you have everything perfect. They’ll tell you what they need.
- Know your budget: Before looking for a loan, you will want to crunch some numbers and figure out what you can afford. One good rule of thumb: Your monthly loan payments should not account for more than 28% of your income, and your payments on all different forms of debt should not rise above 36% of your income.
- Understand the market: The area in which you’re hunting for a home makes a lot of difference when finding a loan. If you’re looking for a home in an area where many people have foreclosed, for example, you may be forced to pay more for mortgage insurance or pay a higher down payment. You don’t have to be an expert (that’s what the mortgage lender is for) but having some understanding of the market going in will help you avoid unpleasant surprises.
- Raise your credit score: A poor credit score will limit your ability to qualify for good deals on many loans, especially conventional loans. Before you can work to raise your credit score, you have to know what it is. Many credit card companies will let you know your score for free, and there are also services available that will offer a report on your credit. Raising your credit score is a long-term process, and can be somewhat difficult. In the short term, the best thing to do is look for any errors on your credit card company’s part and pay off any balances you can.
- Pay off your debts: This step is straightforward enough – too much debt can make it more difficult to qualify for a loan. The solutions is simple enough (though not necessarily easy): Pay off the debt!
- Shop around: Once you have done everything else, it’s time to find a mortgage lender! In a way, finding the right mortgage lender for you is like finding the right person to perform any other service: Talk to other people who have chosen lenders and find out what type of experience they have had. Check reviews online. It’s worth it to be scrupulous during this step, as a good mortgage lender can make the entire complicated process much easier and cheaper.
Completing these six steps before shopping for home loans will potentially mean a better deal, and certainly mean fewer headaches as the process goes on. If you’re a first-time home buyer you might be apprehensive about starting to look for a loan, but if you develop a solid foundation you will have nothing to fear. Happy hunting!
Want to know what options are available for a loan? Check out our page for first-time home buyers.