HOME LOANS IN ARKANSAS AND HOW TO GET APPROVED
It is important to be qualified for home loans in Arkansas before you shop for real estate. As the economy continues to rebuild from the recession, many people are looking to buy. The market is extremely competitive and you often have to compete with cash investors.
Understanding the Mortgage Market Today
Before the housing crisis, almost anyone could get a mortgage, or two or three. Yet now, even as the market is recovering, the crisis has left its mark. Mortgage underwriting, the criteria banks use to determine whether to loan, is much more stringent. This doesn’t mean it has to be difficult to qualify for home loans in Arkansas. It just means that proving to the bank that you are financially prepared for a mortgage is more important than ever.
What you need to know to get Approved for Home Loans in Arkansas
- Your monthly income
- The sum of your total monthly debt payments (auto loans, student loans, credit card minimum payments, etc.)
- Your credit score and any credit issues you’ve had in the past few years
- How much cash you can put down
- How much house you can afford
(1) Calculate your income and your monthly debt obligations.
The first step in preparing to apply for a mortgage is to document your monthly income and debt payments. You’ll need to provide at least two weeks of pay stubs to your lender as well. The underwriting process will be a bit more involved if you are self-employed or have variable income. The lender may ask for one or two past tax returns then count the average.
Getting approved for the mortgage you want is all about staying within certain ratios. Lenders use ratios to determine how much you can afford. Large debt payments will limit the size of the mortgage approval you can get. If possible, pay these loans off and avoid taking any new loans.
(2) Give your credit health a checkup
Before applying for a mortgage, obtain both your credit score and your credit history report. Verify there are no errors on the report or recent derogatory items such as late payments. Your estimated FICO credit score should be at least 680 but preferably above 700. Anything less and you may need to find a highly-qualified cosigner. However, the lower your credit score, the higher the mortgage rates.
Also, do not apply for new credit in the few months leading up to your mortgage application. Banks get suspicious if it looks like you’re piling on new credit.
(3) Determine your mortgage budget
Before ever speaking to a lender, determine how much house you can afford and are comfortable paying. These can be two different numbers! Your total housing payment (including fees, taxes and insurance) should be no more than 35 percent of your gross income. Many recommend sticking to 25 percent of your gross income. Also remember your monthly payment is subject to variables like mortgage interest rate, property taxes, home insurance costs, private mortgage insurance, etc.
(4) Figure out how much you can save for a down payment
Next, determine how much you can save for a down payment. In today’s market, lenders typically require at least 10 percent down. However, some special loan programs require less. If you have it, consider putting 20 percent down to avoid private mortgage insurance (PMI). PMI is costly insurance that protects your mortgage lender should you foreclose prior to building sufficient equity in the property.
Commit to the maximum you want to spend before beginning the approval process. Many different variables can try to temp you into buying a more expensive home than you can afford.
Pre-Approval
As you get closer to buying a home, you’ll want to seek pre-approval for home loans in Arkansas. You can meet with a local bank, credit union, or mortgage broker as well as online national mortgage lenders. Wherever you go, this pre-approval isn’t binding, but is a formal(ish) indicator of your ability to get approved for mortgage. Most sellers will want to see a pre-approval letter within a couple days of receiving your offer, if not included with the offer itself.
Summary
If you are a prime borrower candidate (good credit and income), a reputable mortgage lender should offer you their best rates. Don’t be afraid to shop around for rates on home loans in Arkansas either, as small differences in your mortgage rate can add up to big savings over the life your loan.