Tips on How to Secure a Loan for Your House


An illustration of a man holding a house

Buying a home is often a universal dream that is shared by almost everyone. Generally, you'd think of young couples who are just starting their families as typical homebuyers. Yes, while that is true, even the older generations have that desire too. Veterans, in particular, do want to be property owners as well. After all, real estate is one of the most valuable assets that anyone can own in their lifetime.

The nerve-wracking process of applying for a mortgage is a lengthy one. If this is your first time securing a loan, you should know some things that will aid you in the process. If followed correctly, you might find a lender such as Jacaranda Finance and get your application approved sooner than you imagined.

If you have found your dream house, your next step should be to look at your finances to determine how you will buy the house.

Following are five tips on how to secure a loan:


Check Your Credit History

It all starts with credit and ends on credit. Before diving into the process, take a step back and assess your financial standing. Check your credit report to determine how much you can afford as a loan.

Get a free copy of your credit report from the three credit reporting agencies: Equifax, Experian and Illion. Check these reports to make sure there are no errors in them. It often happens that a false negative marking on the report lowers your credit score. If you find an error, contact the bureau immediately and provide them with pay stubs to fix it. Usually, this is done within 30 days, which gives you plenty of time to look at other important matters, such as talking with lenders.

Clear any delinquent payments immediately before applying for the mortgage if you see any. Clearing your existing debt is important because when the lender makes a hard inquiry, they will see these payments and assume that you won't be able to keep up with the monthly payments. So, remedy this before you proceed.


Improve Your Credit Score

Your credit score is the deciding factor for the lender on whether they should give you the loan or not. You can get favourable loan terms if your credit score rating is in the "Good" range.

Credit Score Range Equifax illion Experian
Excellent 833 - 1200 800 - 1000 800 - 1000
Very Good 726 - 832 700 - 799 700 - 799
Average 622 - 725 625 - 699 625 - 699
Fair 510 - 621 550 - 624 550 - 624
Poor 0 - 509 0 - 549 0 - 549


As you can see, the credit range varies from bureau to bureau. Your credit score is made up of the following factors:

  • Payment History (35%)
  • Debt (30%)
  • Credit History Length (15%)
  • Credit Mix (10%)
  • New Credit (10%)

Two of the most important factors are payment history and debt. You need to make sure that you pay your bills on time and don't have any debts. Avoid opening new credit lines a month before you apply for the mortgage. As long as your credit score is between 624 and 700, a lender will readily give you the loan with a low interest rate.


Pay the Loan Under 15 Years

Next, you need to decide on the loan type. From government-backed vs. conventional to variable vs. fixed interest rate and short vs. long term, you need to decide between each option to set your loan terms. A conventional loan has strict requirements and is given by private lenders such as Jacaranda Finance, whereas a government-backed loan is an FHA loan that has a lengthy process.

With a variable interest rate, you will be able to take advantage of any dips in the market. However, you will know exactly how much you must pay every month with a fixed interest rate. Finally, a short term loan will cost you less, and the long term loan will become too expensive.

For example, you get a $200,000 loan with a 4% interest rate. If the loan term is set for 15 years, you will have paid $266,288 by the end date. If the loan term is doubled, you will pay $77,451 more in interest.


Calculate Your Affordability

Plenty of online calculators will help you determine how big of a loan you can afford. Follow the 28/36 debt-to-income ratio rule to find out where you stand. Keep in mind that your monthly payments should be less than 28%. If your DTI is high, work on lowering your debt first before applying for the loan.


Get Approved

Talk with a lender and give him all your paperwork to get pre-approved. The lender will look at your income, assets and credit score to determine how much you can afford. A pre-approval letter allows you to convince the seller that you are a serious buyer and gives you an edge over other buyers.

And this is how you make sure that your application gets approved! Don't forget to talk with multiple lenders to get the ideal interest rate on your loan. Also, ask if the lender can give a grace period upon missing any payments.