Currently, 65.8% of Americans own their own home. It’s a freeing prospect, considering that you’d be making payments toward something that’s yours instead of throwing away money to a landlord with nothing to show for it in the end.

Because of this, you’re thinking of leaping from renting to owning. But like most people, you don’t have the cash to pay upfront for a new home, so you’ll need to take out a home loan.

Not everyone can get approval though. Here are 5 things you should know about getting a home loan so you’re prepared.

1. You Need Good Credit

Good credit isn’t absolutely necessary to get home loans, but it can make a huge financial impact. For one, it’ll open you to more choices, as institutions are more inclined to approve you for a mortgage.

Also, the higher your credit score, the lower the interest rates you’ll get. This means you’ll be on your way to being debt-free quicker.

2. Have a Stable Income

No one wants to lend a substantial amount of money to someone who’s unemployed or doesn’t have a good work history. So before you consider buying a home, get your employment sorted out first.

The good news is, lenders will consider your assets too. So if you have investments, this will help.

3. Have a Good Debt-to-Income (DTI) Ratio

Not only should you have good credit and a stable income, but you should also have a good DTI ratio. In general, you shouldn’t have one over 50%, and institutions will approve those with less than 43%.

So sit down and calculate your DTI ratio before applying for a home loan. If you find that yours is over 43%, then work on lowering your ratio first.

4. Have Enough for the Down Payment

You can’t just apply for a mortgage and then use that to pay for your new house. You’ll also need a sizable down payment that comes out of your pocket.

Typically, down payments cost up to 20% of the property’s price. The exact amount will depend on which type of loan you get and if you’re avoiding private mortgage insurance (PMI). If the latter applies to you, then you’ll need to put down over 20% for the down payment.

5. Be Prepared for Unexpected Costs

Home purchases almost never go according to plan, so don’t count on the home loan to cover everything. For example, you might find hidden damages and will need to pay to fix them, plus pay to stay in your apartment for a bit longer.

Make sure you have a good financial buffer before buying a new home.

Make Sure Your Home Loan Process Goes Smoothly

Getting a home loan can be stressful and exciting at the same time. But by reading this article, you’ll know what to expect and can prepare ahead of time. And as a result, you’ll be able to lessen anxiety and get approval quicker.

Before you know it, you’ll be a homeowner! Good luck in your endeavor.

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