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3/8/2023

3 Factors that Go Into Getting Your Home Loan

The staff from Olympia Federal Savings appeared on this week's GRGTalks podcast to talk about the basics of lending and the different options still available to buyers in this current market. One of the main topics that were focused on was what it takes to secure a home loan that is advantageous to you.

When it comes to purchasing a home, one of the most important things to consider is how you will finance it. For most people, taking out a home loan is the best way to make homeownership a reality. However, the process of securing a home loan can be overwhelming, especially for first-time homebuyers. In this blog post, we will discuss the three main factors that go into determining your home loan.

Credit Score

Your credit score plays a crucial role in determining whether or not you will be approved for a home loan. Lenders use your credit score to evaluate your creditworthiness and to determine the interest rate you will be offered. Generally, the higher your credit score, the lower your interest rate will be. A good credit score is typically in the range of 670 to 739, while a score of 740 or higher is considered excellent. If your credit score is below 670, you may still be able to obtain a home loan, but you may be required to pay a higher interest rate.

It's important to note that your credit score isn't the only factor that lenders consider when evaluating your loan application. They will also look at your credit history, including any missed payments, bankruptcies, or foreclosures. If you have a blemish on your credit history, you may still be able to obtain a home loan, but you may need to provide additional documentation or pay a higher interest rate.

Debt-to-Income Ratio

Another important factor that lenders consider when evaluating your loan application is your debt-to-income ratio (DTI). Your DTI is a measure of how much debt you have compared to your income. Lenders use this number to determine how much of a monthly mortgage payment you can afford. Ideally, your DTI should be no more than 36%. However, some lenders may be willing to offer a loan to borrowers with a higher DTI, depending on other factors such as credit score and down payment.

"Debt-to-income ratio is very important," Natalie Read of Olympia Federal Savings says. "We want to be able to to see that borrowers can still afford a home and make payments on time."

It's important to note that your DTI includes all of your debt, not just your mortgage. This includes things like car loans, student loans, and credit card debt. If you have a high level of debt, you may need to work on paying it down before you apply for a home loan. This can help improve your DTI and increase your chances of being approved for a loan.

Down Payment

The amount of your down payment is also an important factor that lenders consider when evaluating your loan application. A down payment is the amount of money you pay upfront towards the home's purchase price. Typically, lenders require a down payment of at least 5% to 20% of the purchase price. The larger your down payment, the less you will have to borrow, which can result in a lower monthly mortgage payment and a lower interest rate.

"If someone brings in 20% or more, Olympia Federal has some wiggle room," Natalie says. "We look at the whole picture. Not just the credit score. We're not credit score based."

If you're struggling to come up with a down payment, some options are available. For example, you may be able to obtain a loan with a lower down payment requirement if you qualify for a government-backed loan. Additionally, some lenders offer down payment assistance programs that can help you cover the cost of your down payment.

Great Home Loan Options are Still Available

Securing a home loan can be challenging, but understanding the factors that determine your loan can make it easier. Your credit score, debt-to-income ratio, and down payment are three of the most important factors that lenders consider when evaluating your loan application. By improving these factors before applying for a loan, you can increase your chances of being approved and obtaining a loan with favorable terms.

Olympia Federal Savings has plenty of good loan options available for buyers, including a -- loan that provides a friendly interest rate for potential first-time home buyers, and a -- for those who are able to afford it. 

"Our first time home buyers loan and affordable home loan programs are pretty much all I've been doing lately," Natalie says. "At the end of the day, we aren't just a lender. We are a full-service bank, so we want to establish a relationship with our customers. That's why we can afford to still put together buyer-friendly loans for our customers." 

It's important to remember that every lender is different, and they may weigh these factors differently when evaluating your loan application. Additionally, lenders may consider other factors, such as your employment history, savings, and assets. By working with a knowledgeable mortgage professional, you can better understand what factors are most important for your specific situation and increase your chances of being approved for a home loan.

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