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New year, new home: 5 steps toward mortgage loan approval in 2011

If you're financially prepared and your career and personal life provide for staying in one location for several years, buying a home can be a good investment. If you're ready to adopt a St. Bernard puppy and become your own home repair expert, here are some tips for preparing to qualify for a mortgage loan.

  1. Check your credit reports and scores: Pull all three credit reports and scores from the three major credit reporting bureaus. You're entitled to one free copy of each credit report annually, but you may have to pay for your credit scores. Consider this an investment toward your goal of owning a home. Review your credit reports carefully, and contact credit bureaus to correct erroneous information.

  2. Take stock of your plans and goals: Depending on where you stand with your career and long term goals, there are a variety of mortgage loans to match your needs. If you're buying a starter home, and you plan to move up within a few years, you may benefit from a hybrid adjustable rate mortgage with a low introductory rate for three to five years. If you're financially conservative or you are buying a home you plan to keep, a fixed-rate mortgage is likely your best match. You can potentially save thousands on interest by taking out a shorter term mortgage with higher monthly payments.

  3. Pay down consumer debt: If you're carrying credit card debt, vehicle loans or student loans, it can be worthwhile to postpone buying a home until your total monthly minimum debt payments total no more than about 25 percent of your gross monthly take-home pay. The less you owe, the lower your mortgage rates will likely be.

  4. Plan for paying down payment and closing costs: Conventional mortgage loans typically require 20 percent down; you can also finance your home through FHA programs for minimum down payments ranging from 3.5 to 10 percent. Closing costs vary depending on regional custom and actual costs required. Local real estate pros can help with estimating closing costs in the area where you're planning to buy. The higher your down payment, the lower your mortgage rate and costs will likely be.

  5. Know what you can afford: Mortgage lenders approve home loans based on your income, employment, monthly obligations and projected housing expenses for the home you're buying. Using free mortgage calculators can help you estimate an affordable price range for your next home.

Being pre-approved for a mortgage loan lets the seller know you're serious about buying a home and also helps with avoiding delays caused by loan approval problems once you've made an offer.

About Author: Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.

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