Economic activity in the US is definitely on the rise. For all of 2018, it is likely that the US will have grown at a 4% rate or higher, which has not been seen for more than a decade. This means it is likely that home sales will grow in 2018. If you are one of the many Americans with more money in their pocket, below are some tips on how to get approved for house loan in 2019.
#1 Save for a Down Payment
As more people are finding work and wages are rising, you should be focused on saving money for your down payment. But despite what many think, it is not necessary to have a 20% down payment to buy a home for many programs. While lending criteria did tighten after the mortgage crash of 2009, it is very possible to get a home loan in 2018 with far less than 20% down.
There are conventional loan programs backed by Fannie Mae and Freddie Mac that allow 3% down payments. It makes sense to spend a few minutes to determine how much you can afford with a FHA home loan. Also, the FHA has great loan programs that require only a 3% down payment. If you can get a gift from a relative, you can actually get into an FHA loan with zero down.
The VA program is a fantastic deal for military veterans; you may be able to get a home loan with 100% financing.
#2 Get Your Credit in Shape
You do need to have acceptable credit to get a home loan in 2018. But good news – the definition of ‘acceptable credit’ has a very flexible definition these days!
One of the best options for getting a house loan in 2018 is the FHA finance loan. This program is guaranteed by the Federal Housing Administration. This matters because it means that if you do not pay the loan, the FHA will pay back the lender. Thus, the lender can allow people with lower credit scores to get approved for a home loan.
In 2018, the typical credit score for a borrower with an FHA loan was 686. The conventional home buyer had a credit score of 750.
The great news with FHA loan requirements are still lenient as you can have a score in 2018 as low as 500 technically and still get a home loan. To have a 3.5% down payment, you will need to have a FICO score of 580. If your score is below that, you need to have a 10% down payment. It will generally be harder to find a loan with a score under 580. So, your best bet for getting a home loan in 2018 is to get that credit score above 600.
#3 Have Savings in Reserve
Many lenders do not want you to empty your savings account to make your down payment and closing costs. They want often to see reserves, or assets that can be quickly sold so that you can make your house payments if you have an interruption in your income.
The lender will determine the minimum reserves they want to see for you to get approved for a home loan. While most home lenders today want to see some amount of cash reserves, it is possible to get an FHA loan with minimal cash reserves.
#4 Buy a Home You Can Afford
The old mentality in some corners was to buy as much home as they could afford under the theory that your income would rise as the years went by. However, after the mortgage meltdown, many financial advisers are more conservative in their recommendations. They argue today that it is more important to live within your financial means. You can move to a more expensive home when your income increases.
A good rule of thumb for buying a home in 2018 is that your debt obligations should not be more than 36% of your income before income taxes.
#5 Look at No Closing Cost Mortgages
Many home mortgages have $3,000 to $5,000 or more in closing costs. If you pay these fees out of pocket at closing, you will have a lower interest rate. But if you want to save money, you may consider a no closing cost mortgage. This will require you to pay a higher rate over the life of the loan, but it can be worth it for borrowers who want to save money out of pocket when they first buy a home.
Keep in mind that a no closing cost mortgage is often best for people who think they will sell the home within five or six years. You will be paying that higher mortgage interest rate for the entire life of the loan, after all.
#6 Keep Your Finances Predictable and Boring
In the year before you apply for a home loan, it is wise to keep your finances as steady and predictable as you can. You should try to stay in the same job, and don’t run up a lot of credit card debt or buy a new car while you are in the underwriting process.
Remember, just before you go to closing, the lender will run your credit again to ensure that your credit and finances are the same. So, you want to have everything look absolutely normal on those fronts.
Takeaway on Home Buying This Year
Getting a home loan in 2019 should be easier than ever. Just follow the above tips and you should be able to have a new home in the new year!
References: 10 Tips to Have an Awesome Mortgage in 2018. (2017). Retrieved from http://www.bankrate.com/finance/mortgages/mortgage-tips/