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If you are interested in home ownership you need to find out, ‘How do you get approved for a home loan?’ There are ways that you can insure that the lender will risk lending you funds for your home. The requirements for lending were tightened following the recent housing crisis.  Lenders who risked lending to those individuals that did not meet traditional criteria were involved in subprime lending. These were some of the first foreclosures following the devaluing of homes following the economic down turn in mid 2000. Let’s look at some of the steps below that will help you with your loan approval process.

Step 1:  You need to get your credit report. If you have issues with the report you need to spend the time to clean it up. The credit reporting bureaus use a formula to calculate a credit score that is representative of your credit history. These scores will range from 300 to 850, with 850 being the highest rating. This score will be used by the lender to determine the rate of interest that you pay. If you have scores in the 800s you will be offered those low advertised rates. As your score falls, the rate of interest you will pay rises. If you have debts you can pay off, do so before you make application for a home loan.

Step 2:  If you have bank accounts you will be considered more mature financially. A savings account should hold enough money for the down payment and for the closing costs on the home you want to purchase.  Your accounts will be evaluated for good financial management and for deposits which show a pattern of savings. You will have to pay from 3.5% to 20% down on the value of the home depending on the type loan you qualify for. You will also need a minimum of 3-5% for the closing costs. There are lending products that do not require a down payment and that closing costs can be financed with the principal, but these are restricted to certain borrowers.

Step 3:  You need to have a stable job with sufficient income to qualify for the amount you want to borrow. You should have a minimum of six months with the same employer, or have proof of a successful self-employment business. You will need to prove your income and you will have to list your debt. The lender will figure a debt to income ratio to make sure you can afford the mortgage payment you made application for. All your debt will be added. This includes your car loan, your student loans, all your credit cards, and other personal loans. It is in your best interest to reduce or eliminate debt before applying for a home loan. If you do keep a credit card, you should not charge more than 50% of the limit on the card.

Step 4:  You can also ask for prequalification for a home loan. This will be beneficial if you are planning on bidding on homes that have been foreclosed. The prequalification process is much like the traditional qualification process. You will provide the lender with good faith estimates of your income and your debt. The lender will use that information to determine how much to lend. He will give you a letter of prequalification that will specify the amount of the loan, but the letter will also state that it is not a guarantee of the funds. If the lender can verify the information as accurate, then chances are you will qualify for the amount specified on the prequalification letter.

You know the answer to your question, ‘How do you get approved for a home loan?’ and you can use the information in the above steps to help you prepare for the application process.