Atlanta, being the capital of Georgia, is a dream place to have your own home. Owning a house can also save you from the burden of monthly rental charges and the need to shift apartments. But securing your first dream home in Atlanta can be a troublesome process and securing a mortgage requires knowledge of sufficient information. Understanding mortgages can be complex for people buying a home for the first time, but this blog will simplify those steps and put them forward in the most understandable way.
Pre-approval vs. Pre-qualification
A person can make an estimate beforehand about whether they will qualify for a mortgage or not, known as “pre-qualification”. It can be a useful method to estimate how much you can afford, but it only gives you an estimate. In contrast to this, a pre-approval is much more valuable because this means that the lender has actually checked, verified and approved your documentation for a specific loan amount.
After pre-approval, the final approval takes place when the loan is applied for on a particular property.
How much can you afford?
Your mortgage will be determined by your down payment, income and the total amount of debt you owe. Lenders usually want borrowers that can afford monthly payments of 28% to 44% of their monthly income. The lender may allow the payments to exceed up to 44% for those who have excellent credit history.
Usually, lenders require you to put down 20% of the total value of the house as down payment. However, there are some instances where a lesser amount is required.
But beware; when going for a less down payment, your mortgage lender will inspect your credit history even more. This is because by investing less, the buyer will lose very little if they ever default on the loan, and thus, the lender finds it to be a riskier deal at their end.
In contrast to this, the higher down payment you pay at closing, the more ownership you will get, and the less you will have to pay overall.
Your credit history has a significant impact on getting mortgage approval. The lender can easily pull out your credit report and obtain a credit score from it. A higher score depicts that there is a higher chance of the buyer paying out the loan. FICO (Fair Isaac Corporation) has invented a model for credit score which is, in most cases, the standard used for evaluation. With a score ranging from 350-850, 680 is the minimum score required for getting a good loan.
Buyers should definitely review their credit history and credit scores before submitting home loan applications. Never assume your scores are high enough to qualify. In spite of with a higher credit score, missed payments, frequent late payments, and other negative credit information can hinder mortgage approvals.
The bottom line
- Repair your credit and increase your score
- If the lender tells you your income is not high enough, find out how much more you need to earn in order to qualify for the loan. Then you can look for a new job in your line for expertise to qualify for the loan.
- The larger down payment you put down, the smaller the loan you will need. So another way is to save for down payment.
- Reduce your credit card loans or student loans so that the lender knows that you can afford mortgage because a lower amount of your income is being spent on debts.