What Is a Home Loan and How Can You Apply for One?

Even among Millennials, around 89% want their own homes one day. It’s a key part of the American Dream. It’s also a way for families to create stability and settle down.

It’s also very expensive. While most people probably fantasize about dropping a stack of cash on the table to buy a home, a home loan is a far more likely prospect.

For people who rented apartments their whole lives, though, a home loan can prove foreign territory. You might ask, “What is a home loan? How do I even apply for one?”

Keep reading for a quick look at what home loans are and the application process.

What Is a Home Loan?

A home loan or mortgage is when you borrow money to pay for your new home. There are two main paths to getting a home loan.

Most people start with a traditional mortgage through a bank. While you can inquire with your bank, it generally pays for you to shop around.

Different banks can offer very different kinds of mortgages. Key things you should watch for include interest rates, points, and fees. Mortgages with low-interest rates but lots of points and fees can cost you more overall.

You can also look for mortgage programs through the FHA. The FHA often offers lower interest rates and has programs geared for first-time buyers. You often get a lower down payment with them as well.

Applying for a Home Loan

The application process follows a more or less standard pattern with all lenders. You’ll get an application form, often online, that asks you a lot of questions about:

• Your finances
• Debt
• Employment status
• The loan you want
• The property you want

You fill out the form and submit it to the lender. You should do this with all the lenders you picked out as good prospects.

After that, the lenders will come back loan estimates. You review the terms offered and pick one. The lender verifies your information and it goes to underwriting. The underwriter reviews all the info and decides whether to approve the loan.

If they approve, the money becomes available for you to close on the property.

Tips for Application Success

Successful applications depend on a lot of factors, only some that you control. Things you can control for include your credit score and income-to-debt ratio.

You can boost your credit score by paying bills on time and keeping hard inquiries low. Basically, don’t apply for six credit cards in two weeks.

You can keep a solid income-to-debt ratio by not living beyond your means. Keep your credit balances low. Don’t live off of short-term loans.

Parting Thoughts

Knowing the answer to what is a home loan is often the least meaningful part. It’s just money you borrow for a home purchase.

Understanding the application process is often more critical. You’ll likely apply with multiple lenders. The process is slow, often taking weeks from application to final approval.

You’ll want your credit score as high as possible. Work on your income-to-debt ratio as you approach application time.

Thinking about applying for a home loan in the near future? Head to our website and keep an eye on mortgage trends by reading our home loan coverage.

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