If you’ve decided to own a home, there are several steps you can take to make the process go smoothly. Applying for a home loan requires numerous facets, from selecting the right lender to getting your finances in order. Here are a few essential tasks to complete if you want to get the house of your dreams.

3 Steps to Applying for a Home Loan

1. Collect Your Financial Information

When applying for a home loan, you’ll need to provide your full legal name for your credit information to be obtained. You’ll also list any dependents living with you, as well as your address history for the last two years.

Financially, you’ll need to have a list of your employment history and income information, in addition to your current employer’s name, address, and phone number. To verify your income and assets, you’ll need to prepare two months’ worth of bank and retirement statements, pay stubs, and W-2s for the last two years.

2. Learn About Loan Requirements

Each lender has different requirements for individuals applying for a home loan. Two important factors that will be considered are your debt-to-income (DTI) ratio and credit score. The DTI measures how much debt you have compared to your income and is used to gauge the likelihood you can pay back the loan. Most financial institutions look for a DTI ratio that’s 43% or below.

While it’s possible to get a home loan with a credit score of around 500, you’ll get better rates if your credit is in the 700s. The lower the credit score, the more you’ll have to put in the down payment, making it important to increase the number before applying for a loan. Try to pay any remaining balances below 30% and regularly pay bills on time to improve the score.

3. Select a Loan Type

You’ll also need to know what kind of loan you want. The three most common types include conventional, FHA, and VA. A conventional loan is recommended for individuals with a credit score of 620 or higher and allows for down payments as low as 3%.

FHA loans can be approved with a credit score of 580 or more with 3.5% down, or 500 with 10%. VA loans are eligible for active-duty servicemen, veterans, and spouses with nothing down, no minimum credit score, and no mortgage insurance.

If you want to start the process of applying for a home loan but aren’t sure where to begin, consult the team at Hawaii County Employees Federal Credit Union in Hilo. For over 80 years, this institution has provided individuals and families with financial guidance, loans, and a safe place to save their money. To learn more about your options, visit them online or call (808) 935-2969.