People get loans for a variety of different reasons:

• Buying a home (mortgage)
• Buying a car
• Education
• Improving/renovating property
• Consolidating debt
• Other large purchases

Understand the Different Types of Loans

The type of loan needed really depends on what you need the money for. For instance:

• To buy a house, you need to take out a mortgage.
• To buy a car, you need an auto loan.
• To attend college, student loans are available to help pay for the costs of education.
• To improve or renovate your current property, one option is a home equity line of credit (HELOC) that allows you to borrow money against the equity already accumulated in your property.
• To make other large purchases or consolidate debt, there are numerous options.

Regardless of the type of loan you need, first make sure you can get approved for the loan. Here are a few tips to help increase your chances of getting a loan for whatever your situation.

Have a Good Credit Score

Most home, car, HELOC, and consolidation loans are based on your credit (FICO) score. This is a number between 300 and 850. The higher the number, the better your credit score.

When applying for a loan, banking institutions request copies of your credit report. This report looks at the following areas (percentages show importance of area):

• 35% - payment history
• 30% - amount owed in relation to total amount of credit available
• 15% - length of credit history
• 10% - new credit
• 10% - types of credit used (mortgages, home equity lines of credit, auto loans, major credit cards, department store credit cards, etc.).

If you have a good credit score, besides increasing your chances of obtaining a loan, you may also help lower the interest rate for the loan. You can view examples of interest rates based on credit scores by visiting the MyFICO Web site at www.myfico.com/Default.aspx.

It is extremely important to pay attention to your credit score and report any discrepancies immediately. You are entitled to one free credit report annually. To apply for this report, go to Annual Credit Report.com’s Web site at www.annualcreditreport.com.

Be Prepared to Offer a Down Payment

When applying for a mortgage, a down payment is usually required. This down payment consists of all closing costs and a percentage of the purchase price. Your lending institution should be able to tell you the minimum down payment required for a mortgage (typically between 5% to 20%). The best option, however, would be to provide as much money as you can afford; 20% of the purchase price is often recommended as a good down payment.

The more money you offer as a down payment on a mortgage, the more likely a bank will be to give you the loan. For additional tips on buying a home and loan down payments, visit Bankrate.com at hwww.bankrate.com/brm/green/mtg/basics3-2a.asp?caret=15.

There are banks and financial institutions that offer low-money down mortgages. However, be aware that these loans may have hidden risks involved. For more information about home loans with low down payments, visit Kiplinger.com’s Web site at www.kiplinger.com/basics/archives/2002/09/story12.html.

Although not all loans require down payments, you may increase your chances of getting loans by offering a down payment. Some auto loans allow for down payments, thus reducing your monthly payment. Again, you will need to check with the financial institution regarding the down payment policy.

Stay Within Your Budget

Before applying for a loan, take the time to look over your monthly and yearly budgets and consider how much you can truly afford to spend. Then check out current interest rates in your area. You can use a mortgage calculator like the one at Mortgage-calc.com at www.mortgage-calc.com/mortgage/simple.php or an auto loan calculator like the one at www.bankrate.com/brm/auto-loan-calculator.asp to figure out monthly payments.

Banks and lending institutions pay attention to the amount of the loan in relation to the amount of income and payments you have monthly. You are more likely to get a loan that is clearly payable within your budget.

Find Someone to Co-Sign the Loan

If you do not have great credit history, steady employment history, and/or a large down payment or if you are applying for a student loan, you do have the option of finding someone to co-sign for a loan. Although this may help you get approved for a loan, realize that using a co-signer gives that person access to your account information.

Finding a co-signer may not be easy. You are asking someone to put his or her own credit at risk so you can get a loan. If you default on this loan, you not only hurt your credit but your co-signer’s credit as well.

Additional Resources

• MSN Money Web site: http://articles.moneycentral.msn.com/Banking/HomeFinancing/The5MinuteGuideToHomeLoans.aspx

• MortgageLoan.com Web site: http://www.mortgageloan.com/how-to-apply-for-an-fha-loan-1733
• U.S. Department of Housing and Urban Development (HUD): http://www.hud.gov/buying/loans.cfm
• Credit.com Web site: http://www.credit.com/credit_information/auto/Great-Car-Great-Pricing-but-what-about-the-Financing.jsp

• Free Application for Federal Student Aid (FAFSA):  http://www.fafsa.ed.gov/