How Do You Get a Home Loan?

Getting a Home Loan

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Getting a home, and the mortgage that comes with it could be the most important financial transaction you ever make. But how do you go about getting a home loan?

What kind of credit score do I need for a home loan?

First, you should make a good effort to improve your credit before getting a home loan. The better your credit score, the easier time you’ll have finding a mortgage, and the lower rate you’ll usually have to pay. It’s often a good idea to see if you can get your score into the 750s, since 750 and above is considered “excellent” credit, which can usually get you the best interest rates. To improve your credit score, first, find out where you’re at currently -- you can do this by going to a site like If there are any errors on your report, make sure to contact the credit bureau that issued it to dispute the error. Otherwise, you could be stuck for paying for something you didn’t do.

After you figure out your current score, try paying off your credit card balance. If possible, use only 20% of your maximum available credit, and don’t apply for any new credit cards before applying for a mortgage.

Of course, you don’t need a credit score in the 700s to buy a house. If you’re getting an FHA loan, for example, the minimum FICO score is 580. But, either way, having a high credit score can help increase your mortgage options -- and that’s pretty much always a good thing.

How much should I save before buying a home?

Unless you’re getting an FHA mortgage, you’ll usually need enough cash to afford a 20% down payment on the home before getting approved for a mortgage.

Plus, you’ll want to make sure that you have enough money saved up to keep up with expenses that you might not think about at first, like closing costs and the 1-3% of the home price that most Americans spend each year on home upkeep and maintenance.

It’s also a good idea to see if you can keep 6 months of potential mortgage payments in a savings account. That way, you won’t get in trouble if the unexpected happens, like a sudden job loss or a big medical bill.

How do I get preapproved for a mortgage?

Before you actually find the home you want to buy, it pays to check out what banks and other lenders might be willing to give you. Shopping around can get you a better deal, which can make it easier to make a quick decision when you actually need to act. It can also show the home’s seller that you’re serious about buying -- so they’re less likely to sell the home to another buyer.

During the pre-approval process, the lending institution will want to get basic information. In addition to your credit score, they’ll usually want to see your earnings and employment history, so they can feel confident that you can afford your mortgage.

What else do I have to do get a home loan?

After you’ve decided on a home and gotten pre-approved for a mortgage, the bank or lending institution issuing the mortgage will want to have the home appraised. It’s usually a good idea to avoid paying more for a home than what it’s worth -- unless it’s your absolute dream home (but even then, it doesn’t hurt to play it safe).

At this point, unless there are any issues, the bank will officially approve your mortgage. Then, you’ll order a home inspection to make sure that the home doesn’t harbor any hidden errors or defects. If you do see anything wrong, you may want to ask for the seller to repair it or, perhaps better yet, lower the price.

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