Getting on to the housing ladder can be difficult, but it is also a challenge upgrading to a larger house when you have outgrown your current house. The sums of money involved in home loans are large and qualifying for a loan is not always easy. How to qualify for a house loan is a question everyone thinks about, from first-time buyers to upgraders.
In this article we will discuss what you can do to make it easier to qualify for a house loan. First, we will explain how you can improve your chances to qualify for a home loan as a first-time buyer. Next, we will give you a few tips on qualifying if your credit score is low. Finally, we will take a look at some of the more useful mortgage calculators so you can see what is affordable in terms of your monthly finances.
Qualify first time home buyer
The first step into home ownership is the most difficult one, in part because it is very difficult to save up for a deposit. When you are not selling an existing property in which you have equity, pulling together five figure sums for a deposit is a challenge. Thankfully there are several schemes that help first time buyers to qualify for a home loan, even if their deposit options are restricted.
First, have a look at the Federal Housing Administration, which can offer you a loan with as little as 3.5% in deposit. You need to have a good credit history to qualify, however. Two other state departments that offer help include the USDA (U.S. Department of Agriculture) and also the Department of Veterans Affairs. Fannie Mae or Freddie Mac are also good ports of call for first time buyers.
As a first time buyer lenders will be particularly concerned about your credit score, so building and maintaining a solid credit score is highly advisable. Remember that a history of well-managed credit is better than no credit history, so if you plan on taking out a mortgage think about obtaining a credit card that you pay off every month. This will illustrate that you can be trusted with a credit product.
How to get a mortgage with a low credit score
A low credit score does not necessarily exclude you from obtaining a home loan. If you need a home loan straight away, and your credit score is not optimal, you may need to be a bit flexible. Lenders may consider you if you can offer a high deposit, or may charge you a higher interest rate on your loan. Also consider whether there are any errors on your credit file: occasionally a poor score is due to an erroneous filing, get this fixed before you apply.
Sometimes a low credit score simply means you need to be a little bit patient and work on recovering your credit history. Consider renting cheaply for a period of time, and make sure that you pay down any high interest debts, while always meeting your agreed repayments. Late payments stay on your file for seven years and will eventually no longer affect your credit score.
Mortgage qualification calculator
If you have never before applied for a mortgage it really helps to know whether you can afford the repayments associated with a mortgage. A mortgage qualification calculator takes into account the total value of the house loan, the interest rate you will be charged as well as the repayment period.
There are a few good mortgage qualification calculators online. You can try a calculator from a bank, or a mortgage calculator from an independent website. First, look at ScotiaBank’s mortgage calculator. The ScotiaBank calculator takes into account additional factors such as property taxes and condo fees plus your heating costs.
On the flipside Guild Mortgage has a simpler set of inputs, but it provides a detailed layout of your mortgage costs. The simplest calculator is at calculator.com, great if you already have a bit of an idea of what you can afford and just want to check what the repayment are on a mortgage of a certain size.
Want to qualify? Strategize
In summary, qualifying for a mortgage involves long-term planning. Prospective home owners need to focus on getting two areas right. First, work to achieve a near-perfect credit score as this will both increase your eligibility and reduce the costs of your mortgage. Achieving a good score takes time, and you need to illustrate responsible use of credit.
Next, you have to try and save at least a small deposit, even if it is just 5%. Doing so will require personal perseverance and can take many years. Save funds in an account which is hard to access so that you are not tempted to use your deposit funds for spending or emergencies. Over time you will build both a good credit score and have a deposit available, making you an attractive mortgage customer. This is the key to owning your dream home.